Transparency in Poultry Grower Contracting and Tournaments, 83210-83301 [2023-24922]
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Federal Register / Vol. 88, No. 227 / Tuesday, November 28, 2023 / Rules and Regulations
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
9 CFR Part 201
[Doc. No. AMS–FTPP–21–0044]
RIN 0581–AE03
Transparency in Poultry Grower
Contracting and Tournaments
Agricultural Marketing Service,
USDA.
ACTION: Final rule.
AGENCY:
This final rule amends the
regulations under the Packers and
Stockyards Act, 1921 (Act), to add
disclosures and information that live
poultry dealers engaged in the
production of broilers must furnish to
poultry growers with whom dealers
make poultry growing arrangements.
The rule also establishes additional
disclosure requirements for live poultry
dealers engaged in the production of
broilers who use poultry grower ranking
systems to determine settlement
payments for broiler growers. These
requirements add targeted transparency
to the market for grower services that
will inhibit deceptive practices related
to broiler contracting and performance.
The Act protects fair trade, financial
integrity, and competitive markets for
livestock, meat, and poultry.
DATES: This final rule is effective
February 12, 2024.
FOR FURTHER INFORMATION CONTACT: S.
Brett Offutt, Chief Legal Officer/Policy
Advisor, Packers and Stockyards
Division, USDA AMS Fair Trade
Practices Program, 1400 Independence
Ave. SW, Washington, DC 20250;
Phone: (202) 690–4355; or email:
s.brett.offutt@usda.gov.
SUPPLEMENTARY INFORMATION: At the
beginning of the 20th century, a small
number of meat packing companies
dominated the industry and engaged in
practices that were deemed
anticompetitive and harmful to
livestock producers. In response,
Congress enacted the Packers and
Stockyards Act, 1921 (Act), 7 U.S.C. 181
et seq., which seeks to promote fairness,
reasonableness, and transparency in the
livestock marketplace by prohibiting
practices that are contrary to these goals.
In the 100 years since the Act went into
effect, livestock business practices have
changed significantly, particularly in
the poultry industry, for which
provisions were added to the law in
1935 (Act of August 14, 1935, 49 Stat.
648).
Within the last 40 years, the poultry
industry has become highly integrated,
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with most live poultry dealers operating
as ‘‘integrators’’ who frequently own or
control all segments of the production
process except growout, where poultry
growers raise young poultry to harvest
size under poultry growing
arrangements (contracts). Most
integrators employ a relative
performance or grower ranking system
to determine grower payment, as
explained later in this section. Thus,
AMS’s references to ‘‘integrator’’ in the
discussion of this final rule refer
specifically to those live poultry dealers
who are vertically integrated and
generally use a relative performance or
grower ranking system to determine
grower payment.
Over the same 40-year time span, the
industry has also become more
concentrated.1 One measure of industry
concentration is the four-firm
concentration ratio, which is the
combined market share of the four
largest firms in the industry. A higher
four-firm concentration ratio means a
higher level of industry concentration.
In 1963, the four firm concentration
ratio for chickens was 14 percent.2 By
1980, the four-firm concentration ratio
for integrators processing broilers was
32 percent.3 By 2022, the four-firm
concentration ratio increased to 57
percent.4 Concentration is even higher
at the local level in which growers
operate. In the last available survey of
local markets, MacDonald and Key
(2011) found that about one quarter of
contract growers reported that there was
just one live poultry dealer close enough
to grow for; another quarter reported
two; another quarter reported three; and
the rest reported four or more.5
There are approximately 16,500
broiler (chicken grown for meat)
growers—those who actually raise the
chickens from chicks, often under
contract with live poultry dealers—in
the U.S.6 Based on comments from the
industry, broiler growers typically have
no employees, but some may employ a
handful of workers outside themselves
and their families.7 According to annual
reports filed with the Department of
Agriculture (USDA), there were 42 live
poultry dealers engaged in broiler
production in the U.S. in their fiscal
year 2021.8 Of those, 20 have fewer than
1,250 employees each, and have average
annual sales of $77 million.9 Fewer than
5 percent of approximately 20,000 U.S.
broiler grower contracts are with these
20 dealers.10 More than 95 percent of
broiler grower contracts are with the 22
larger live poultry dealer companies that
employ more than 1,250 employees
each and have average annual sales of
$3.6 billion.11 Total U.S. chicken sales
for these dealers was $58.6 billion in
2019.
Most broiler growers raise poultry
under a contractual growing
arrangement commonly known as a
tournament system.12 Under this
system, integrators use a relative
performance or grower ranking system
for settlement purposes, i.e., to
determine grower payment among a
group of competing growers. Poultry
growers in tournament systems find
themselves competing for payment
without access to information in the
possession of the integrators that would
allow growers to manage, as best they
can, poultry production under the
1 One measures of industry concentration is the
four-firm concentration ratio, which is the
combined market share of the four largest firms in
the industry. A higher four-firm concentration ratio
means a higher level of industry concentration.
Rapid increases in broiler productivity, an
important factor driving consolidation, did not
begin until after World War II. Charles R. Knoeber.
‘‘A Real Game of Chicken: Contracts, Tournaments,
and the Production of Broilers.’’ Journal of Law,
Economics, & Organization, Vol. 5, No. 2. (Autumn,
1989).
2 Michael Ollinger, James MacDonald, and Milton
Madison. Structural Change in U.S. Chicken and
Turkey Slaughter. U.S. Department of Agriculture,
Economic Research Service. Agricultural Economic
Report No. 787, September 2000, p. 7.
3 John M. Crespi, Tina L. Saitone, and Richard J.
Sexton Competition in U.S. Farm Product Markets:
Do Long-Run Incentives Trump Short-Run Market
Power?, Applied Economic Perspectives and Policy
(2012) volume 34, number 4.
4 WATT Poultry USA, March 2023. Companies
ranked by weekly ready to cook pounds.
5 James M. MacDonald, Technology,
Organization, and Financial Performance in U.S.
Broiler Production, EIB–126, U.S. Department of
Agriculture, Economic Research Service, June 2014:
30, https://www.ers.usda.gov/webdocs/
publications/43869/48159_eib126.pdf?v=0.
6 USDA, NASS. 2017 Census of Agriculture:
United States Summary and State Data. Volume1,
Part 51. Issued April 2019.
7 AMS has no exact data on grower revenues but
assumes most broiler growers are small businesses
as defined by the Small Business Administration
(SBA), with annual sales of less than $3.5 million.
8 All live poultry dealers are required to annually
file PSD form 3002 ‘‘Annual Report of Live Poultry
Dealers,’’ OMB control number 0581–0308. The
annual report form is available to public on the
internet at https://www.ams.usda.gov/sites/default/
files/media/PSP3002.pdf.
9 Live poultry dealers annual report submissions
PSD form 3002 ‘‘Annual Report of Live Poultry
Dealers,’’ to AMS. OMB control number 0581–0308.
10 Ibid.
11 Ibid.
12 Citing data from the 2011 ARMS survey,
MacDonald states ‘‘97 percent of broilers were
grown under contract, 94 percent of contracts
included payment incentives tied to grower
performance, and 93 percent of those contracts tied
the incentives to relative performance—that is,
performance compared to other growers.’’ See
MacDonald, James M. Technology, Organization,
and Financial Performance in U.S. Broiler
Production, EIB–126, U.S. Department of
Agriculture, Economic Research Service, June 2014:
27.
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Federal Register / Vol. 88, No. 227 / Tuesday, November 28, 2023 / Rules and Regulations
payment systems established by the
integrators.
Live poultry dealers generally do not
provide, and poultry growers and
prospective poultry growers find
themselves unable to negotiate access
to, (1) critical information needed to
properly assess farm revenue streams
and the operation of poultry growing
contracts, and (2) information related to
the distribution of inputs delivered to
growers affecting performance among
tournament participants. Whether from
a representation, omission or practice,
the inability to secure this information
exposes growers to deception and risks
of deception that could be reduced or
eliminated with the provision of the
information. Additionally, live poultry
dealers possess or are reasonably
expected to possess this information
and are able to provide it to growers
with minimal costs. For more than two
decades, USDA, through the
Agricultural Marketing Service (AMS)
and its Packers and Stockyards Division
(PSD) which now administers the Act,
and formerly through Grain Inspection
Packers and Stockyard Administration
(GIPSA), has received numerous
complaints from poultry growers about
poultry growing contracting in general
and tournament systems particularly.
While the complaints cover a range of
concerns, a central concern is the gap
between expected earnings and the
ability to achieve those outcomes
through reasonable efforts by the
grower. This central concern is
manifested specifically where live
poultry dealers fail to make transparent
the range of financial outcomes possible
in these arrangements, where they exert
high degrees of discretion that can and
do adversely affect growers, and where
they fail to provide information
necessary for growers to understand and
respond to changing factors (i.e., input
differences) in the operation of their
contracts.
Among other things, the Act protects
growers from deceptive practices
wherein they can be misled through
lack of information from live poultry
dealers regarding both potential
revenues and the risks growers assume
in the course of making and operating
their contracts. Accordingly, AMS is
establishing rules that will increase
transparency in broiler growing
contracting, including tournament
systems, targeted at key decision points
for growers—at the time of contracting
and housing upgrades, and at the
provision of inputs during tournaments.
These are points where live poultry
dealers repeatedly and consistently
either omit vital information or make
misleading statements, which prevents
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growers from understanding the risks
they are taking on. Such
misrepresentations may inhibit growers’
ability to choose amongst competing
live poultry dealers on a level playing
field.
This rulemaking sets forth enforceable
transparency requirements under
section 202(a) of the Packers and
Stockyards Act that will secure a more
level playing field for growers and foster
a marketplace with fairer contracts and
the fairer operation of those contracts
under the contract production model.
Deception undermines the integrity of
the market and deprives producers of
the true value of their livestock.
In addition to the prohibitions on
deceptive practices set forth this final
rule, AMS is also evaluating additional
specific prohibitions and regulatory
limitations. To facilitate additional
input, data, and ideas that may inform
further efforts to regulate the poultry
tournament system, USDA put forward
an Advance Notice of Proposed
Rulemaking seeking stakeholder input.
Based on that input, AMS has included
in the Office of Management and
Budget’s Spring 2023 Regulatory
Agenda an upcoming proposed rule
entitled ‘‘Poultry Grower Payment
Systems and Capital Improvement
Systems.’’ 13 AMS welcomes
engagement with interested
stakeholders around ideas to be
developed in that further rulemaking on
poultry tournaments.
I. Overview
On June 8, 2022, AMS published in
the Federal Register (87 FR 34980;
Docket No. AMS–FTPP–21–0044) a
proposal to amend the regulations
implementing the Packers and
Stockyards Act. AMS solicited
comments on the proposed rule for an
initial period of 60 days and extended
the comment period 15 days on August
8, 2022 (87 FR 48091) through August
23, 2022. AMS received 504 comments,
some with multiple signatories, from
individual poultry growers, trade
organizations representing producers,
poultry companies, the meat industry,
State- and national-level agriculture
groups, other associations, and nonprofit organizations. After consideration
of all comments, AMS adopts the
proposed rule, with modification.
Section V details the regulatory changes
made by this final rule. Modifications to
the proposed rulemaking are discussed
in Section VI. Public comments are
discussed by topic in Section VII.
13 RIN: 0581–AE18, available at https://
www.reginfo.gov/public/do/eAgendaViewRule?
pubId=202304&RIN=0581-AE18.
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This rulemaking adds two new
sections to PSD regulations under the
Act, introducing new disclosure
requirements that live poultry dealers
engaged in the production of broilers
must furnish to broiler growers with
whom they establish broiler growing
arrangements. In doing so, the final rule
builds on existing disclosure concepts
under the Act in 7 U.S.C. 197(a) through
(c) and in the regulations that effectuate
the Act at 9 CFR 201.55; 9 CFR
201.56(d); 9 CFR 201.99; and
particularly 9 CFR 201.100, with respect
to the poultry industry, which provide
for a range of disclosures such as
settlement sheets and establish other
regulatory requirements. The current
disclosure framework has improved
transparency in poultry contracting and
has helped close the asymmetric
information gap between the parties,
thus reducing the market failure caused
by asymmetric information.14 However,
the modern poultry industry, in
particular the broiler chicken segment,
now requires increasingly large capital
investments; and under the tournament
system, growers are subject to intense
pressures to perform, as well as
financial and operational risks that may
exacerbate the dangers of deception.
Section 202(a) (7 U.S.C. 192(a)) of the
Act prohibits live poultry dealers from
engaging in deceptive practices. This
rulemaking establishes prohibitions
against specific deceptive practices,
such as withholding important
information on the economic, financial,
and operational risks growers take when
entering into and operating their
growing agreements. Growers can make
more informed business decisions when
they know the economic, financial, and
operational risks associated with
poultry growing. A lack of transparency
for growers in poultry growing
arrangements also creates an
environment where growers are more
vulnerable to other marketplace abuses.
Live poultry dealers have possession
of key information that is materially
useful for growers as they make
decisions. This information asymmetry
can be exploited by dealers to impede
growers’ ability to understand, evaluate,
and compare contracts offered by
dealers, bargain efficiently with
competing dealers where and to the
extent possible given the highly
concentrated nature of the poultry
industry, and manage their farm
effectively for the risks they confront.
14 The concept of asymmetric information and
associated market failures is discussed in a seminal
article: Akerlof, G.A. ‘‘The Market for ‘Lemons’:
Quality Uncertainty and the Market Mechanism.’’
The Quarterly Journal of Economics Vol. 84, No. 3
(August 1970).
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This type of deceptive conduct denies
growers the benefits of market and the
full value of their services, and results
in misallocation of grower resources,
heightened live poultry dealer
bargaining power, and significant
financial risk to growers.
This rule adds a new § 201.102 to the
regulations, adding to the list of
required disclosures a live poultry
dealer must make to broiler growers and
prospective broiler growers in
connection with poultry growing
arrangements. By obtaining these
disclosures prior to making the
underlying capital investment, growers
are better positioned to understand and
evaluate growing arrangements. The
rule further requires live poultry dealers
to specify additional terms in broiler
growing contracts about variables that
are highly correlated with grower
annual revenue. This information is not
routinely shared with growers. AMS
intends for these new requirements to
improve transparency and inhibit
deceptive practices in poultry growing
arrangements.
Additionally, this rule adds a new
§ 201.104 to the regulations to require
live poultry dealers to provide
information related to the integratorcontrolled input distribution to poultry
growers paid under grower ranking
systems (tournaments), where growers
are paid based on their performance
relative to a grouping of other growers.
These disclosures allow growers to
evaluate the distribution of inputs
affecting performance such as poultry
breed, gender ratio, and flock health—
of their own flock and as compared to
flocks of all tournament participants.
These new data points will help growers
better understand, evaluate, and
compare the relationships between
inputs, flock performance, and payment
under their poultry growing
arrangement. The requirements in this
rule are intended to provide greater
transparency and inhibit deceptive
practices in the operation of poultry
grower ranking systems.
Finally, this rule makes conforming
changes to the regulations by adding to
the list of definitions in § 201.2 to define
terms used in new § 201.102 and new
§ 201.104.
Specifically, this final rule requires
the following of live poultry dealers
engaged in the production of broilers:
1. A Live Poultry Dealer Disclosure
Document (Disclosure Document), to be
provided to prospective or current
broiler growers that contains critical
information about the broiler growing
arrangement when seeking to establish,
renew, revise, or replace a broiler
growing arrangement with the grower,
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including when a broiler growing
arrangement would or might reasonably
require a broiler grower to make an
original or additional capital investment
to comply with the live poultry dealer’s
housing specifications. A governance
framework and CEO-certification
enhances the accuracy and
enforceability of the disclosures.
a. The Disclosure Document includes
summaries of the dealer’s litigation
history with broiler growers and its
bankruptcy filings over the past 5 years,
the dealer’s policies and procedures
regarding sale of the grower’s farm or
assignment of the growing arrangement
to another party, and the dealer’s
average annual turnover rate for broiler
growers over the past five years.
b. The Disclosure Document describes
the live poultry dealer’s policies and
procedures regarding certain instances
of heightened discretion or unusual
circumstances which would otherwise
be opaque—specifically, increased
layout times; sick or diseased flocks;
natural disasters, weather-related
events, or other events adversely
affecting the physical infrastructure of
the local complex or the grower facility;
other events potentially resulting in
massive depopulation of flocks affecting
grower payments; feed outages
including outage times; grower
complaints relating to feed quality,
formulation, or suitability; as well as
any appeal rights growers may have
relating to any of those items.
c. The Disclosure Document provides
a more fulsome set of financial
disclosures, including average annual
gross payments to growers over the past
5 years broken out by quintiles to reflect
the full range of outcomes, and a
summary of information pertaining to
grower variable costs inherent to broiler
production.
2. Mandated disclosures in the
contract that also set out the minimum
number of placements to be delivered to
the broiler grower’s farm for each year
of the broiler growing arrangement
contract, as well as the minimum
stocking density of each placement.
3. When a poultry grower ranking
system is used, disclosures of critical
information about the flock (e.g.,
stocking density, breed names and
ratios, breeder facility identifiers, and
breeder flock age) placed with the
grower must be disclosed within 24
hours of delivery.
4. When a poultry grower ranking
system is used, dealers must provide
settlement disclosures regarding critical
information about each grower’s ranking
within the system, in particular the
nature of the inputs received (e.g.,
stocking density, breed names and
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ratios, breeder facility identifiers, and
breeder flock age) and housing
specifications for each growout period,
without the identities of the growers to
each other.
II. Background
A. Demand for This Rulemaking
For more than two decades, poultry
growers have complained to USDA of
abuses that arise in the contracting
process and the operation of those
contracts under poultry grower ranking
systems, also known as the tournament
system, a payment method which
dominates the broiler chicken industry.
To address these longstanding concerns
regarding the fairness and competitive
functioning of the market, Executive
Order 14036 ‘‘Promoting Competition in
the American Economy’’ (86 FR 36987;
July 9, 2021), directs the Secretary of
Agriculture (Secretary) to consider
rulemaking to address, among other
things, unfair treatment of farmers
arising from certain practices related to
poultry grower ranking systems. AMS
has considered that direction in
undertaking this rulemaking, as well as
in undertaking an Advance Notice of
Proposed Rulemaking around ideas to
be developed in further rulemaking on
poultry tournaments.
USDA’s efforts to address grower
complaints of malfeasance and abuses
in the broiler industry now span more
than a decade.15 In 2010, USDA held a
series of workshops in conjunction with
the Department of Justice (DOJ) to hear
from producers about concentration and
trade practice issues in agriculture. At
the workshop in Normal, Alabama,
poultry growers complained that their
success or failure is dependent on
factors controlled by their integrators.16
Further, growers were troubled by the
lack of alternative integrators in many
regional relevant markets, which further
heightens the bargaining position of
integrators.17 Grower public comments
at the workshop were consistent with
numerous comments submitted to
USDA in connection with previous
rulemaking efforts, as well as on the
June 8, 2022, proposed rulemaking.
Growers expressed concerns about
contract dependency, uncertainty of
15 See, generally, Leonard, Christopher, The Meat
Racket (2014).
16 Transcript, United States Department of Justice,
United States Department of Agriculture, Public
Workshops Exploring Competition in Agriculture:
Poultry Workshop May 21, 2010, Normal, Alabama
(https://youtu.be/j11GXzvA7u0?t=1822).
17 See Domina, David A. and Robert Taylor. ‘‘The
Debilitating Effects of Concentration Markets
Affecting Agriculture,’’ Drake Journal of
Agricultural Law 15 (May 2010): 61–108. See also
Leonard, Christopher, The Meat Racket (2014).
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pay, and informational asymmetries
related to farm revenues and debt.
Poultry growers have indicated they
lack information about certain crucial
production factors controlled by live
poultry dealers, such as the anticipated
frequency and density of flock
placements and bird target weight under
poultry growing arrangements, which
heavily influence grower payments on
an individual flock basis and over the
long term.18
Growers cited the level of control and
discretion reserved to integrators under
their contracts, remarking how
discretionary decisions controlled by
integrators related to inputs quality,
flock placements, housing
specifications, tournament grouping,
and other production factors can
significantly affect grower revenue and
profitability. Many growers were
worried that contract terms did not
cover the time required to repay the
debt on their farms, noting that—
sometimes unforeseen—additional
capital investments, such as those
necessitated by integrators’ housing
specifications, can plunge growers into
further debt without assurances of
adequate or stable returns.19 Growers
indicated they do not have adequate
information with which to assess
original and additional capital
investments because pay rates alone are
insufficient for long-term revenue
estimates without assumptions related
to integrator discretionary production
decisions.20 Growers have also raised
concerns regarding the use of overly
rosy ‘‘pro forma’’ financial estimates,
including income projections, during
the contracting process, which in the
growers’ experience are not realized.21
Finally, poultry growers complained
to USDA about being prohibited by
dealers from asserting their rights under
the current regulations to discuss
poultry growing contracts with USDA
18 United States Department of Justice, United
States Department of Agriculture, Public
Workshops Exploring Competition in Agriculture:
Poultry Workshop May 21, 2010; Normal, Alabama
(https://youtu.be/8CvEGyMQ9v8?t=2156).
19 United States Department of Justice, United
States Department of Agriculture, Public
Workshops Exploring Competition in Agriculture:
Poultry Workshops May 21, 2010; Normal, Alabama
(https://youtu.be/j11GXzvA7u0?t=2422) (https://
youtu.be/j11GXzvA7u0?t=3032).
20 United States Department of Justice, United
States Department of Agriculture, Public
Workshops Exploring Competition in Agriculture:
Poultry Workshops May 21, 2010; Normal, Alabama
(https://youtu.be/j11GXzvA7u0?t=2453).
21 United States Department of Justice, United
States Department of Agriculture, Public
Workshops Exploring Competition in Agriculture:
Poultry Workshops May 21, 2010; Normal, Alabama
(https://youtu.be/8CvEGyMQ9v8?t=4226; https://
youtu.be/j11GXzvA7u0?t=3084; https://youtu.be/
j11GXzvA7u0?t=3091).
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government representatives (including
PSD), family members, lenders, and
other business associates. Some growers
allege they have been threatened or
retaliated against by integrators for
asserting those rights, including for
responding to Federal Government
requests for information—specifically,
the 2010 DOJ Workshop.22 USDA also
received comments to the proposed rule
that alleged some growers were
harassed, intimidated, and retaliated
against for refusing to make expensive
upgrades to their growing operations.
Similar to the comments received
during the 2010 workshop, comments
received in response to this proposed
rule specifically reaffirmed that one
prevalent deceptive practice involves
live poultry dealers’ omission of key
information in the contracts with
growers. This omission of information
caused growers to believe that they were
signing up for a contract that in practice
they did not end up receiving or provide
providing services under. Numerous
comments to the proposed rule
described how dealers provide growers
with inadequate information on
settlement sheets, particularly related to
payment, and how, without this
information, growers could not make
sound business decisions.
Commenters have noted live poultry
dealers do not provide critical
information about—
• typical upfront associated costs;
• revenues and the full range of
possible outcomes thereto;
• sale-of-farm policies;
• dealer bankruptcy and litigation
history with poultry growers;
• grower turnover rate;
• how dealers handle—and growers
are affected by—depopulation, sick
chicks, natural disaster, weather-related
events, and impairments to the physical
infrastructure of the local complex or
the grower’s facility; feed outages; feed
quality, formulation, and suitability;
and appeals processes related thereto;
• minimum flock numbers and
stocking densities;
• information about inputs and any
differences between them, such as about
the breeds, chick weights, breeder
facilities, breeder flock age, and bird
sexing—both at delivery and at
settlement; and
• at settlement, information about
housing type. Growers expressed a
strong need for such information, as
they could use it when deciding how to
manage their farms, grow chicks, and
22 United States Department of Justice, United
States Department of Agriculture, Public
Workshops Exploring Competition in Agriculture:
Poultry Workshops May 2010; Normal, Alabama
(https://youtu.be/8QJ_K06lp5M?t=1051).
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take on—or not take on—additional
risks in growing broiler chicken.
B. Market Structure and Production
Contracts
Integrated live poultry dealer firms
typically own and manage local
‘‘complexes’’ of integrated operations
that include hatcheries, feed mills,
transportation systems, and processing
facilities, and they contract with
individual growers within a local region
to raise birds for meat and hatchery
eggs.23 As explained earlier, these live
poultry dealers that own and manage
vertically integrated operations are
referred to in the industry as
‘‘integrators.’’
Through vertical integration,
integrators control the complete supply
chain from the genetics of breeder stock
to slaughter. While integrators own most
of the inputs and manage the operation
of the supply chain, they outsource the
function and major costs of raising
poultry to broiler growers—and control
much of that process through
production contracts. Contracting with
individual growers to grow out broilers,
rather than procuring broilers from
company-owned farms, is advantageous
to integrators for two reasons: (1) the
rapid pace of technological change in
broiler production since the 1950s
requires ongoing significant capital
investments, and (2) the use of
tournaments to compensate growers
insulates growers from common
production risks (such as disease and
extreme weather) and lowers transaction
costs.24
Through the poultry growing
arrangement, broiler growers provide
the growout facilities and the
equipment, labor, and management
associated with those facilities. Broiler
growers are typically responsible for
utilities, fuel, maintenance, and repairs.
Growers are responsible for ensuring the
equipment functions properly and the
environment inside the poultry house is
satisfactory at all times throughout
placement, including waste removal and
disposal of deceased birds. These
activities are subject to significant
discretion and control by the integrator
through contract terms and integratorsupplied supervisors or service
technicians who oversee growers.
Integrators exert significant power over
contract poultry grower operations
23 MacDonald, James M. Technology,
Organization, and Financial Performance in U.S.
Broiler Production, EIB–126, U.S. Department of
Agriculture, Economic Research Service, June 2014.
24 Charles R. Knoeber. ‘‘A Real Game of Chicken:
Contracts, Tournaments, and the Production of
Broilers.’’ Journal of Law, Economics, &
Organization, Vol. 5, No. 2. (Autumn, 1989).
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through individual production contracts
and payment systems.
Grower revenue is a function of
payment per flock multiplied by the
number of flocks over a time period.
While the specific formula for flock
payment varies among integrators, it
typically involves the evaluation of
three variables: payrate, farm weight,
and feed consumed. Where used to
allocate payment, the tournament
system is supposed to essentially rank
growers on their efficiency in
production, with payrates adjusted up
or down based upon the growers’
deviation from average performance of
all growers over the growout period.
Growers’ annual revenues are heavily
dependent upon the annual number of
flock placements and stocking density 25
of each placement, which are typically
discretionary functions controlled by
the integrator. Empty poultry houses do
not produce revenue. Additionally,
under tournament contract payments,
flock performance—and therefore per
flock payments—can be influenced by
integrator discretionary decisions
related to variation in input
distributions like poultry breeds,26 bird
sex,27 breeder stock age,28 stocking
25 Often expressed as a ratio of birds per square
foot, or pounds (target weight of poultry at harvest)
per square foot, stocking density reflects the
number of birds placed on a farm or in a poultry
house.
26 Muir, W.M. and SE Aggrey. Poultry Genetics,
Breeding, and BioTechnology (2003).
27 See Burke, William, and Peter J. Sharp. ‘‘Sex
Differences in Body Weight of Chicken Embryos.’’
Poultry Science 68.6 (1989): 805–810; and Beg,
Mah, et al. Effects of Separate Sex Growing on
Performance and Metabolic Disorders of Broilers.
Diss. Faculty of Animal Science and Veterinary
Medicine, Sher-e-Bangla Agricultural University,
Dhaka, Bangladesh, 2016.
28 See Washburn, K.W., and R.A. Guill.
‘‘Relationship of Embryo Weight as a Percent of Egg
Weight to Efficiency of Feed Utilization in the
Hatched Chick.’’ Poultry Science 53.2 (1974): 766–
769; Weatherup, S.T.C., and W.H. Foster. ‘‘A
Description of the Curve Relating Egg Weight and
Age of Hen.’’ British Poultry Science 21.6 (1980):
511–519; Wilson, H.R. ‘‘Interrelationships of Egg
Size, Chick Size, Posthatching Growth and
Hatchability.’’ World’s Poultry Science Journal 47.1
(1991): 5–20; Goodwin, K. ‘‘Effect of Hatching Egg
Size and Chick Size Upon Subsequent Growth Rate
in Chickens.’’ Poultry Science 40 (1961): 1408–
1409; Morris, R.H., D.F. Hessels, and R.J. Bishop.
‘‘The Relationship Between Hatching Egg Weight
and Subsequent Performance of Broiler Chickens.’’
British Poultry Science 9.4 (1968): 305–315;
Peebles, E. David, et al. ‘‘Effects of Breeder Age and
Dietary Fat on Subsequent Broiler Performance. 1.
Growth, Mortality, and Feed Conversion.’’ Poultry
Science 78.4 (1999): 505–511. AMS notes
additionally that research in this and related areas
has limitations. It is older and results are mixed.
AMS is concerned that publically available research
has stagnated, despite the introduction of new
breed strains in the intervening years. Because
integrators now own the genetics companies, AMS
has additional concerns that research has, in effect,
been privatized, creating informational
asymmeteries. Based on regulatory experience and
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density,29 consistency of feed
availability,30 and the type and
administration of veterinary
medicines.31
Moreover, when integrators encounter
problems in performing their contract
obligation to provide inputs, they often
seek to resolve them via discretionary
functions reserved to the integrator
under the contract. From growers’
points of view, these are operational
risks that can result in actual or
perceived disparate treatment among
growers. When natural disasters or
weather events affect the integrators’
ability to provide chicks and feed or
other key physical infrastructure of the
local complex or grower facility,
growers are unlikely to be aware of the
integrators’ policies and procedures that
dictate allocation of inputs or determine
availability or supplemental pay.
Similarly, if a disease outbreak or
massive depopulation event affects
growers, growers have a right to be
informed of the policies and procedures
that will be implemented to control the
outbreak, assign payment, and reallocate
inputs. As feed is a primary input for
growout, growers must be made aware
of policies and procedures to report
issues of feed suitability and quality to
company personnel. Integrators do not
necessarily share these policies and
procedures with growers and often use
informal rules with respect to the abovementioned issues. Without this critical
information, growers’ ability to
understand and evaluate, as well as
compare contracts among integrators, is
impeded, and the potential for
deception in contracting and deceptive
practices in the operation of those
contracts increases.
Due to market consolidation
combined with certain natural factors
(such as the fragility of birds, limiting
their transport), many integrators
on public comments, growers believe these factors
affect performance, highlight its value to growers
from disclosure.
29 Dozier III, W.A., et al. ‘‘Stocking Density Effects
on Growth Performance and Processing Yields of
Heavy Broilers,’’ Poultry Science 84 (2005): 1332–
1338; Puron, Diego et al. ‘‘Broiler performance at
different stocking densities.’’ Journal of Applied
Poultry Research 4.1:55–60 (1995).
30 Dozier III, W.A., et al. ‘‘Effects of Early SkipA-Day Feed Removal on Broiler Live Performance
and Carcass Yield.’’ Journal of Applied Poultry
Research 11.3 (2002): 297–303.
31 Treatments may be necessary to mitigate
disease within a single poultry house or an entire
flock, or to boost the performance of suboptimal
progeny from impaired breeder flocks, as described
above. These treatments may affect the flock’s
growth rate or mortality. See Wells, R.G., and C.G.
Belyawin. ‘‘Egg quality-current problems and recent
advances.’’ Poultry science symposium series. No.
636.513 W4. 1987. (citing Spackman, D. ‘‘The
Effects of Disease on Egg Quality.’’)
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operate as monopsonists 32 or
oligopsonists 33 in their relevant
regional market. Some research 34 shows
a correlation in local markets between
the number of available integrators and
grower payments, with payments
shrinking as the number of integrators
decreases. In local markets, the lack of
alternative integrators, coupled with
integrator control and discretion over
production contracts, leaves growers
with little bargaining power to obtain
reasonable contract assurances and
transparency.
Under the existing poultry industry
market structure, growers are dependent
on a live poultry dealer and receive only
nominal assurances related to
production levels and the variables
composing farm revenue, while
integrators set those production levels
and have significantly more data related
to grower payment variables, which
generate costs integrators seek to
minimize. The failure to provide critical
information is deceptive given the
conditions of asymmetrical information
that compound as growers accumulate
debt and operate in a tournament they
do not control, both of which are
discussed in greater detail below.
C. Grower Debt and Hold-Up Risk
Poultry growout operations require
significant financial investments on the
part of poultry growers, who typically
provide the facilities (poultry housing
and necessary equipment), utilities
(electricity, gas, and water), manure
management, compliance with
environmental regulations, labor, and
day-to-day management of growing
poultry. One of the costliest investments
is in poultry housing and equipment,
the requirements of which are dictated
to the poultry grower by the live poultry
dealer through the contract. Throughout
the term of the contract, live poultry
dealers may encourage, incentivize, or
even require a poultry grower, at the
grower’s expense, to upgrade existing
32 Merriam-Webster online dictionary: A
monopsonist is one who is a single buyer for a
product or service of many sellers. https://
www.merriam-webster.com/dictionary/
monopsonist; accessed 3/8/2022.
33 Merriam-Webster online dictionary:
Oligopsony is a market situation in which each of
a few buyers exerts a disproportionate influence on
the market. An oligopsonist is a member of an
oligopsonistic industry or market. https://
www.merriam-webster.com/dictionary/oligopsonist;
accessed 3/8/2022.
34 MacDonald, James M., and Nigel Key. ‘‘Market
Power in Poultry Production Contracting? Evidence
from a Farm Survey’’. Journal of Agricultural and
Applied Economics 44 (November 2012): 477–490.
See also, MacDonald, James M. Technology,
Organization, and Financial Performance in U.S.
Broiler Production, EIB–126, U.S. Department of
Agriculture, Economic Research Service, (June
2014): 29–30.
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housing or equipment in order to renew
or revise an existing contract. Revenue
instability and continuing debt
accumulation may explain the low
returns to equity 35 in this space.
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1. Construction Costs
A 2011 study estimated a cost of
$924,000 for site preparation,
construction, and necessary equipment
for four 25,000-square-foot poultry
houses (or $231,000 per house) in rural
Georgia at that time, independent of the
cost for the land.36 Costs for establishing
poultry houses have increased
substantially since 2011, due to the
advancement of new technologies in
poultry housing and the increased cost
of materials. AMS estimates current
construction costs at nearly $500,000
per poultry house.37
Poultry growers can incur
considerable debt to make the
investments necessary for poultry
production. Most new broiler housing is
debt-financed. According to MacDonald,
U.S. contract poultry growers’ total debt
amounted to $5.2 billion, or 22 percent
of the total value of their assets, in
2011.38 The research cited here found
that debt loads—and exposure to
liquidity risks, should flock placements
and revenues fall—are closely related to
the age of the operation, with newer
farmers carrying greater debt relative to
the value of farm assets. Farmers with
fewer than six years of experience in
broiler production carried debt equal to
51 percent of assets, on average, and one
quarter of those farmers carried debt
equal to at least 77 percent of assets.
The weight of poultry grower debt
load can be exacerbated by three
additional factors: (1) the length, in
terms of time, of a poultry growing
arrangement is rarely long enough to
cover the grower’s debt repayment
period, and can be as short as one flock;
(2) growers may be encouraged or
required by live poultry dealers to
invest in facility upgrades, which may
lead to additional debt; and (3) poultry
housing is a specific-use asset with little
35 MacDonald (June 2014) Op. Cit., pp. 38–40.
Data from the Agricultural Resource Management
Survey—Version 4, Financial and Crop Production
Practices, 2011, and U.S. Census Bureau, 2011
Quarterly.
36 Cunningham, Dan L., and Brian D. Fairchild.
‘‘Broiler Production Systems in Georgia Costs and
Returns Analysis 2011–2012.’’ UGA Cooperative
Extension Bulletin 1240 (November 2011),
University of Georgia Cooperative Extension.
37 See, for example, Cunningham and Fairchild
(November 2011) Op. Cit.; Simpson, Eugene, Joseph
Hess and Paul Brown, Economic Impact of a New
Broiler House in Alabama, Alabama A&M & Auburn
Universities Extension, March 1, 2019 (estimating a
$479,160 construction cost for a 39,600 square foot
broiler house).
38 MacDonald (June 2014) Op. Cit.
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salvage or repurpose value.39 In other
words, the grower is unlikely to be able
to use or sell the facilities for a different
purpose should the poultry growing
contract be terminated. These ‘‘term,’’
‘‘upgrade,’’ and ‘‘specific use’’ problems
are rooted in asymmetrical information
problems at the contracting stage, where
live poultry dealers have knowledge and
control of production and technical/
equipment needs over the useful life of
the poultry farm and growers do not.
Combined, these factors create classic
hold-up risk, where live poultry dealers
make contract renewal dependent on
further grower investments not
disclosed at the time of the original
agreements.40
Grower debt problems are exacerbated
by the limited number of live poultry
dealers in most localities and by
complex dealer-specific requirements
that inhibit grower movement between
dealers, particularly for growers with
older poultry houses. For example, a
grower who currently produces smaller
birds for one live poultry dealer may
desire to move to a different dealer that
wants larger birds. The grower could be
required to upgrade their poultry
growing facility to include more cooling
capacity in order to accommodate larger
birds. However, such upgrades may not
be economically feasible for the grower,
so the grower stays with their current
live poultry dealer. Growers also may
encounter problems trying to sell their
farm to exit the industry. Banks
commonly require that a prospective
buyer secures a contract with a live
poultry dealer to be approved for
financing the farm, making the
availability of the poultry growing
contract a critical element to the farm’s
sale. Growers have often expressed
frustration with live poultry dealer
refusals to offer contracts to interested
buyers, thwarting farm sales. Growers
need to understand how live poultry
dealer policies and procedures affect
their ability to sell their poultry
operation.
Grower debt and dependance on live
poultry dealers contribute to additional
risks that are enhanced by other
39 Poultry growing facilities are often
characterized by certain expensive attributes, such
as temperature and other habitat control systems. A
fully equipped poultry growing facility repurposed,
for example, as a hay barn or other storage is
unlikely to generate the revenue necessary to meet
a grower’s $400,000 mortgage obligation. Nor is
repurposing it for an alternative livestock usage,
such as hogs or dairy cows, possible, at least
without retrofitting that would essentially demolish
the growout facility. The grower’s return on
investment is tied to using the facility as intended.
40 Vukina, Tom, and Porametr Leegomonchai.
‘‘Oligopsony Power, Asset Specificity, and HoldUp: Evidence from the Broiler Industry.’’ American
Journal of Agricultural Economics 88 (2006).
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informational disparities. For example,
dealers are not required to provide
growers information related to the
financial condition of the dealer or
complex. Complexes that are
underperforming financially may be
subject to closure or reduced production
levels, resulting in negative effects on
grower revenue and potential contract
termination. Growers also lack insight
into other growers’ satisfaction with a
dealer and how often growers and
dealers are involved in disputes, legal or
otherwise. Dissension between a grower
and their dealer can often result in
contract termination and/or litigation
between the parties. Dealers have
readily available access to information
concerning their financial health,
grower churn,41 and frequency of
litigation with growers. Disclosure of
these items is critically useful
information for growers to understand
and evaluate risk and compare contracts
among competing live poultry dealers.
A live poultry dealer’s failure to
disclose this information to growers is
deceptive.
2. Returns to Equity
The substantial debt accumulation,
hold-up risk, and lack of competition for
grower services, in an environment of
opacity and asymmetrical information,
is reflected in low grower returns to
equity. In 2011, data drawn from a
nationally representative sample of
growers showed that the median
payment received by contract growers
was 5.55 cents per pound of farm
weight. However, 10 percent of growers
earned at least 7.02 cents per pound,
while 10 percent earned less than 4.32
cents per pound.42 The sample data
ranged across all growers and all
contract types, but research has also
shown that payments can range widely
within specific contract types and
within individual grower pools, creating
revenue uncertainty for growers.43
Perhaps even more concerning than
the range of grower contract payments
are the low returns on equity for poultry
operations. According to USDA’s
Economic Research Service (ERS),44 a
41 Grower churn refers to changes in grower make
up at a given complex. This metric reflects growers
who have been terminated or left on their own
accord.
42 MacDonald (June 2014) Op. Cit.
43 Knoeber, Charles R. and Walter N. Thurman.
‘‘Testing the Theory of Tournaments: An Empirical
Analysis of Broiler Production.’’ Journal of Labor
Economics 12 (April 1994). Levy, Armando and
Tomislav Vukina. ‘‘The League Composition Effect
in Tournaments with Heterogeneous Players: An
Empirical Analysis of Broiler Contracts.’’ Journal of
Labor Economics 22 (2004).
44 MacDonald (June 2014) Op. Cit., pp. 38–40.
Data from the Agricultural Resource Management
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special survey conducted in 2011
showed mean returns on equity were
negative for operations with one to two
poultry houses, and increased with the
size of the operation to positive 2.7
percent among operations with six or
more houses. These figures were below
mean rates of return on equity for large
and midsize U.S. farms.45 In AMS’s
experience, growers are experiencing
the ongoing harm of contracting
practices that omit critical information,
such as certain dealer policies and
procedures, input differences,
information needed to evaluate returns
across quintiles, and more.
D. Tournaments
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The majority of growers producing
poultry under production contracts are
paid under a poultry grower ranking or
‘‘tournament’’ pay system.46 Under
poultry grower ranking systems, the
contract between the live poultry dealer
and the poultry grower provides for
payment to the grower based on a
grouping, ranking, or comparison of
poultry growers delivering poultry to
the dealer during a specified period
based on metrics 47 created by the
integrator. Per flock performance
payments under tournament contracts
generally depend on three variables: pay
rate, farm weight, and feed consumed.
In a simplified example, the live poultry
dealer places flocks with ten growers
under contract to deliver the same size
of finished poultry to the dealer’s
processing plant at the end of a
specified growout period. Upon harvest,
each grower’s performance (e.g., farm
weight and feed conversion) is
determined by an integrator-determined
formula. The integrator then compares
individual grower results against
average results for all growers in the
group, and ranks individual growers
according to their relative performance
within the group of ten growers. Grower
contract payrate is adjusted up or down
in relation to the grower’s deviation
from the average within the tournament
grouping for that specific growout
period.
Survey—Version 4, Financial and Crop Production
Practices, 2011, and U.S. Census Bureau, 2011
Quarterly Financial Report (QFR): Manufacturing,
Mining, Trade, and Selected Service Industries.
https://www2.census.gov/econ/qfr/pubs/
qfr11q4.pdf; accessed 1/19/2022.
45 MacDonald (June 2014) Op. Cit. p. 40.
46 MacDonald (June 2014) Op. Cit. See footnote 20
on page 27 citing ARMS data from 2011 that
reported 97% of broilers are grown under contract,
with 93% of contracts tied to relative performance.
47 Metrics are typically associated with ‘‘costs’’.
Formulas to calculate the metric vary among
integrators. A high ‘‘cost’’ grower would be a poor
performance, as a low ‘‘cost’’ grower would have
performed well.
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Grower experience and skill, the
technical specifications and relative
sophistication of the housing, and other
factors, such as the makeup of
tournament groupings or inconsistent
grower effort, may all affect
performance. However, integrator
decisions about inputs provided to
tournament growers can also impact
growers’ relative performance.
Under the tournament system,
integrators control the source of inputs
and the distribution of those inputs to
growers. Key inputs provided by the
integrator are not always uniform with
respect to quality characteristics across
complexes or across time, and variation
in these quality characteristics may
impact grower performance. Based on
AMS’s experience, live poultry dealers
will select strategies around broad types
of inputs to grow at certain complexes,
in general, to target customer
preferences or to meet product
requirements relating to growout or
slaughter efficiency. For example,
certain genetically tailored birds will be
used to grow out more meat in certain
areas or with uniformity in larger or
smaller sizes to help live poultry dealers
tailor their production. Similarly, feed
inputs may be tailored based on the
availability of grains or to achieve other
animal health goals. However, within
these broader strategies, there are a wide
range of differences to the inputs that
growers state are material to the growout
process—such as the sex and age of the
chicks, age and health of breeder flocks,
the feed mix overall based on different
grain availability, and more. Timely
performance by live poultry dealers and
dispute resolution are also relevant to
the growout process. For example,
improper delivery of feed mix designed
for different stages of growout or
delayed delivery or pickup of inputs are
all potentially relevant.
In comments, dealers have denied or
downplayed the significance of input
variability and its effect on bird
performance. Grower commenters are
concerned about input differences and
prefer some level of parity in input
allocations, or at least mitigation of any
disparities. Growers, however, unlike
integrators, do not have direct access to
the specific input differences, which
makes it difficult if not impossible for
them to evaluate whether their
compensation is related to management
and skill or correlated with ‘‘favorable’’
inputs. The lack of information further
enables an opaque market environment
where integrators may provide different
inputs with little check on those
actions.
The omission of this known
information by integrators—impedes
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growers’ ability to understand, evaluate,
and adjust their performance,
management, and skill as growers. In
the absence of this information, growers
are deprived of known information
necessary to understand their
performance and payment in operation
under contract.
E. Addressing the Omission of
Information
As described above, live poultry
dealers have engaged in a series of
omissions in the contracting process
and operation of those contracts that
deprives growers of the ability to make
contracting and investment decisions
and manage the operation and risks of
their farms. This rule addresses that
deceptive practice with regulatory
transparency mandates enforceable
under the Act. Eliminating deception
will increase the intensity of
competition amongst live poultry
dealers to the benefit of growers.
Growers need this information to
understand the market for grower
services, to understand and evaluate
their performance under the terms of the
contract, and to make decisions about
their investments and operations of
their farms that may improve
performance or mitigate risks under
those contracts. The additional
information will intensify competition
in the market for grower services. As a
result of more complete and transparent
information for all market participants,
live poultry dealers will have to
compete more vigorously for grower
services, allowing growers to benefit
from the competition in the market.
The lack of this information further
contributes to an opaque market
environment that exposes growers to
greater risks from actions by live poultry
dealers. The deprivation of this
information is a deceptive practice
under the Act. The final rule addresses
that ongoing deception with specific
transparency requirements in the
contracting process and during the
ongoing operation of those contracts,
consistent with the FTC’s approach to
similar problems in franchising. These
transparency requirements, together
with a governance framework designed
to enhance the reliability of the
disclosures, are enforceable under the
Act by AMS and by growers under
section 202(a)’s prohibition on live
poultry dealers engaging in deceptive
practices.
III. Authority
Congress enacted the Act to promote
fairness, reasonableness, and
transparency in the marketplace by
prohibiting practices that are contrary to
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these goals. In 1921, the Act’s stated
purpose was to ‘‘regulate interstate and
foreign commerce in livestock, livestock products, dairy products, poultry,
poultry products, and eggs.’’ At that
time, poultry was included in the
definition of a ‘‘packer.’’ Amendments
to the law in 1935 added a new type of
entity under its jurisdiction, the ‘‘live
poultry dealer.’’ The poultry industry of
that time involved marketing of live
animals in large population centers,
accompanied by various unfair,
deceptive, and fraudulent practices. The
1935 amendments required that live
poultry handlers be licensed, and
subjected them to criminal penalties for
violations. Congress also made sec. 202
(7 U.S.C. 192) applicable to live poultry
dealers.48 The Poultry Producers
Financial Protection Act of 1987 (Pub.
L. 100–173), modified and replaced
parts of the 1935 amendments. The new
provisions further protected growers of
live poultry by adding payment
provisions (sec. 410), trust provisions
(sec. 207), and adding and modifying
the liability provisions (secs. 411, 412,
and 308), including creating a private
cause of action for violations of sec. 202
of the Act.
AMS authority to regulate deception
and deceptive practices is wellestablished.49 Sec. 202(a) of the Act (7
U.S.C. 192(a)) prohibits live poultry
dealers, with respect to live poultry,
from engaging in or using deceptive
practices or devices. Further, sec. 410(a)
of the Act (7 U.S.C. 228b-1(a)) requires
live poultry dealers obtaining live
poultry under a poultry growing
arrangement to make full payment for
such poultry to the poultry grower from
whom the dealer obtains the poultry on
a timely basis. Sec. 407(a) of the Act (7
U.S.C. 228(a)) authorizes the Secretary
to make rules and regulations as
necessary to carry out the provisions of
the Act. Such regulations are found, in
part, at 9 CFR part 201.
Disclosure is a key component of the
current regulations in place pursuant to
the Act. The current regulations require
disclosure of weights in the settlement
of sales of livestock and live poultry,50
disclosure of certain potential conflicts
of interest in the consignment of
48 An Act to Amend the Packers and Stockyards
Act, S. 12, 74th Cong. (1935).
49 See, e.g. . . . Philson v. Cold Creek Farms,
Inc., 947 F. Supp. 197, 201 (E.D.N.C. 1996) (‘‘[T]he
violation of a regulation such as 9 CFR 201.82 is
indisputably prohibited by the PSA . . . .’’); see
also Stafford v. Wallace, 258 U.S. 495, 515, 42 S.
Ct. 397, 401, 66 L. Ed. 735 (1922) (finding the Act
Constitutional); O V Handy Bros Co v. Wallace, 16
F. Supp. 662, 666 (E.D. Pa. 1936) (finding the
regulation of live poultry dealers Constitutional).
50 9 CFR 201.55 and 9 CFR 201.99.
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livestock at auction,51 and disclosures
for poultry growers at contracting and
on settlement, including the payment
formula, performance plans, grading
certificates, and more.52
Like sec. 202(a) of the Act, sec. 5 of
the Federal Trade Commission (FTC)
Act also prohibits deceptive practices.53
The FTC has long implemented
disclosure requirements under sec. 5 of
the FTC Act for the purpose of
providing adequate information
necessary for parties in imbalanced
business relationships to inhibit
deceptive practices. In 1981, the FTC
adopted a policy statement summarizing
its longstanding approach to deception
cases, which AMS takes notice of.54 For
example, FTC’s Franchise Rule requires
the franchising industry to provide
prospective purchasers of franchises
information necessary to weigh the risks
and benefits of an investment by
providing required disclosures in a
uniform format.55 This rule is designed
to similarly provide current and
prospective poultry growers with
sufficient information prior to entering
into an agreement.
Additionally, disclosure requirements
are commonly utilized in the regulation
of financial markets, housing consumer
protection, and other complex markets
with significant information imbalances,
to prevent deception and other abuses.56
In those markets, disclosure commonly
yields multiple benefits, starting with
correcting the specific information
asymmetries that give rise to
deception.57 For example, disclosure
can also function to create reputational
disincentives to counter potentially
problematic behavior. This rule is
designed in part with that in mind.
Given the longstanding set of grower
complaints about input differences,
costly capital investments, and other
problematic practices arising from live
poultry dealers’ high degree of control
over growers under a poultry growing
arrangement, transparency can
51 9
CFR 201.56(d)
CFR 201.100(a).
53 For a discussion of the Act in relation to the
FTC Act, see, e.g., Kades, Michael. ‘‘Protecting
Livestock Producers and Chicken Growers,’’
Washington Center for Equitable Growth, May 2022,
https://equitablegrowth.org/research-paper/
protecting-livestock-producers-and-chickengrowers/.
54 Federal Trade Commission, Policy Statement
on Deception, 1983, available at https://
www.ftc.gov/system/files/documents/public_
statements/410531/831014deceptionstmt.pdf.
55 16 CFR part 436; 84 FR 9051 (May 2019).
56 D.W. Carlton and J.M. Perloff, Modern
Industrial Organization (1994): 624.
57 Paula J. Dalley, ‘‘The Use and Misuse of
Disclosure as a Regulatory System,’’ 34 Fla. St. U.
L. Rev. 1089 (2007). https://ir.law.fsu.edu/lr/vol34/
iss4/2.
52 9
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reasonably be expected to contribute, at
least in part, to improvements in fair
dealing by market participants. Overall,
disclosure is recognized as a costeffective tool to prevent deception and
improve market integrity.
IV. Summary of the Proposed Rule
In the June 2022 proposal, AMS
proposed to revise current regulations in
9 CFR 201.100 regarding the timing and
contents of poultry growing contracts.
Currently, that section sets forth the
disclosures a live poultry dealer must
make to poultry growers and
prospective poultry growers in
connection with poultry growing
arrangements. The proposal would have
revised § 201.100 by requiring dealers to
disclose additional information to
poultry growers and prospective poultry
growers in connection with poultry
growing arrangements. In the proposal,
the regulations also would have
required live poultry dealers to specify
additional terms in poultry growing
contracts to improve transparency and
forestall deception in the use of poultry
growing arrangements.
AMS also proposed to add a new
§ 201.214 to the regulations to require
live poultry dealers to provide certain
information to poultry growers in
tournament pay systems about
integrator-controlled inputs related to
the poultry flocks growers receive for
growout. Proposed new § 201.214 also
would have added a new level of
transparency to grower ranking sheets.
The proposal was intended to enable
poultry growers to evaluate the
distribution of inputs among all
tournament participants in order for
poultry growers to assess the effect on
grower payment.
Finally, AMS proposed to add to the
list of definitions in § 201.2 to define
terms used in the proposed revisions to
§ 201.100 and proposed new § 201.214.
Upon consideration of public
comments on the proposed rule, AMS
modified some of its proposed
provisions in this final rule. An
overview of the new or revised rule
provisions follows in Section V, a
discussion of changes from the
proposed rulemaking is in Section VI,
and a discussion of the public
comments on the proposed rulemaking
is in Section VII.
V. New or Revised Provisions
AMS addresses concerns related to
market power imbalance and
asymmetric information in poultry
grower contracting by adding two new
sections to 9 CFR part 201 that
implements the Act. The first section
addresses the lack of transparency and
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associated deceptive practices in broiler
grower contracting. The second section
addresses the lack of transparency and
associated deceptive practices in the use
of poultry grower ranking systems to
determine tournament grower payment
settlements for broiler growers. In both
cases, live poultry dealers are required
to make disclosures that provide broiler
growers more information with which to
evaluate poultry growing arrangements.
This rule will better balance the
quantity, quality, and type of critical
information broiler growers, prospective
broiler growers, and live poultry dealers
engaged in the production of broilers
have as they enter and operate under
broiler growing arrangements. Through
this rulemaking, the agency requires
dealers to provide growers with critical
information during the contracting
process. This rule gives growers the
ability to understand and evaluate
contracts from dealers. The rule
enhances the integrity of the
marketplace overall, helps reduce the
risk of other forms of problematical
market practices, such as the
inappropriate provision of different
inputs to different growers, and
prevents certain deceptive practices by
dealers.
AMS also made conforming changes
and changes for clarity in § 201.2,
§ 201.100(a), and § 201.100(b). This
section provides an overview of the new
and revised provisions.
A. Definitions
This rule amends § 201.2 by removing
the paragraph designations within the
section, reorganizing the definitions
alphabetically, and adding definitions
for new terms. The new terms are:
breeder facility identifier, breeder flock
age, broiler, broiler grower, broiler
growing arrangement, complex, gross
payments, grower variable costs,
housing specifications, inputs, letter of
intent, Live Poultry Dealer Disclosure
Document, minimum number of
placements, minimum stocking density,
number of placements, original capital
investment, placement, poultry grower
ranking system, poultry growout,
poultry growout period, prospective
broiler grower, prospective poultry
grower, and stocking density.
Additionally, this rule incorporates into
§ 201.2 the statutory definitions of:
commerce, live poultry dealer, poultry
grower, and poultry growing
arrangement.
B. Disclosure
To address concerns related to
deception and deceptive practices by
dealers in contracting for broiler
growing arrangements and in the
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operation of such contracts, this final
rule adds new, enforceable transparency
requirements on live poultry dealers for
the benefit of growers. Specifically, it
adds a new section at § 201.102,—
disclosures for broiler production, and
makes conforming changes to
§ 201.100(a) and (b). Currently, 9 CFR
201.100 describes the documents that
live poultry dealers must provide to
poultry growers within certain
timeframes. Paragraph (a) of § 201.100
requires a dealer to provide the grower
with a true written copy of the offered
poultry growing arrangement on the
date the dealer provides poultry housing
specifications to the grower. The final
rule retains the requirement for all live
poultry dealers but revises the language
in paragraph (a) for clarity by replacing
‘‘house specifications’’ with ‘‘housing
specifications,’’ replacing the personal
pronoun ‘‘you’’ with ‘‘the dealer,’’ and
by removing the word ‘‘as’’ from the
beginning of the paragraph. Paragraph
(b) of § 201.100 requires live poultry
dealers to allow growers to discuss the
terms of poultry growing arrangement
offers with a Federal or State agency, the
growers’ legal and financial advisors
and lenders, other growers for the same
dealer, and family members or other
business associates with whom growers
have valid business reasons for
consulting about the offered poultry
growing arrangements. This final rule
retains the requirement but revises the
language to clarify that the right to
discuss the terms of the poultry growing
arrangement offer also applies to
prospective poultry growers and, if
applicable, to the accompanying
Disclosure Document described in
§ 201.102. This rule also revises the
language to remove the personal
pronoun ‘‘you’’ and replace ‘‘must allow
poultry growers to discuss the terms of
a poultry growing arrangement offer’’
with ‘‘may not prohibit a poultry grower
or prospective poultry grower from
discussing the terms of a poultry
growing arrangement offer’’ for clarity.
The rest of § 201.100 remains
unchanged.
This final rule adds new § 201.102—
Disclosures for broiler production—
establishing new disclosure
requirements in addition to those
required by § 201.100 for live poultry
dealers engaged in the production of
broilers. This rule adds new definitions
to § 201.2 for: broiler, meaning any
chicken raised for meat production;
broiler grower, meaning a poultry
grower engaged in the production of
broilers; broiler growing arrangement,
meaning a poultry growing arrangement
pertaining to the production of broilers;
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and prospective broiler grower, meaning
a person or entity with whom the live
poultry dealer is considering entering
into a broiler growing arrangement.
New paragraph 201.102(a)—
Obligation to furnish information and
documents—requires the live poultry
dealer engaged in the production of
broilers (‘‘dealer’’) to provide the
prospective or current broiler grower
with the Disclosure Document, as
described in paragraph (b) of the
section, in addition to the true written
copy of the broiler growing
arrangement, under three different
scenarios.
First, under § 201.102(a)(1), a live
poultry dealer engaged in the
production of broilers seeking to renew,
revise, or replace an existing broiler
growing arrangement or to establish a
new broiler growing arrangement that
does not contemplate modifications to
existing housing specifications will be
required to provide both the broiler
growing arrangement and the Disclosure
Document to the grower at least 14
calendar days before the dealer executes
the broiler growing arrangement,
provided that the grower may waive up
to 7 calendar days of that time period.
Housing specifications is defined as a
description of—or a document relating
to—a list of equipment, products,
systems, and other technical poultry
housing components required by a live
poultry dealer for the production of live
poultry. A live poultry dealer will likely
have multiple housing specifications
that operate in concert to create housing
tiers at a given complex. The housing
specifications document or list should
accurately reflect the minimum
requirements for qualification under a
specific housing tier. Growers agree to
provide housing that meets the
minimum requirements of a live poultry
dealer.
Second, under § 201.102(a)(2), a live
poultry dealer that requires the grower
to make an original capital investment
to comply with the dealer’s housing
specifications will be required to
provide the grower simultaneously with
four relevant documents. These
documents are a true written copy of the
broiler growing arrangement, the
housing specifications, the Disclosure
Document, and a letter of intent that can
be relied upon to obtain financing for
the original capital investment.
Finally, under § 201.102(a)(3), a live
poultry dealer engaged in the
production of broilers seeking to offer or
impose modifications to existing
housing specifications that could
reasonably require the grower to make
an additional capital investment will be
required to provide the grower
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simultaneously with four relevant
documents. These documents are a true
written copy of the broiler growing
arrangement, modified housing
specifications, the Disclosure
Document, and a letter of intent that can
be relied upon to obtain financing for
the additional capital investment. AMS
expects most growers will seek
financing for additional capital
investments. The simultaneous
production of the three other documents
will: (1) provide growers with improved
information with which to assess the
new capital investment and (2) allow
growers to establish appropriate
timelines for contemplating the
investment.
The required contents and format of
the Disclosure Document cover pages
are provided in § 201.102(b)—
Prominent disclosures. Paragraph
201.102(b) specifies the required
elements for the cover pages of the
Disclosure Document, including basic
information about the live poultry
dealer, key points in the broiler growing
arrangement, and precise language for
certain notices the dealer must make to
the grower. AMS has developed
downloadable instructions that contain
the language required by § 201.102(b)
for live poultry dealers. The instructions
(Form PSD 6100 (Live Poultry Dealer
Disclosure Document Form Instructions,
OMB Control No. 0581–0308)) are
intended to simplify compliance with
these notification requirements and
provide guidance for complying with
§ 201.102(c) and (d). Under
§ 201.102(b)(1), the required Disclosure
Document cover page must include the
title ‘‘LIVE POULTRY DEALER
DISCLOSURE DOCUMENT’’ in capital
letters and bold type. Section
201.102(b)(2) requires live poultry
dealers engaged in the production of
broilers to list their name, type of
business organization, principal
business address, telephone number,
email address, and if applicable,
primary internet website address.
Paragraph 201.102(b)(3) requires the
dealer to specify the length of the term
of the broiler growing arrangement.
Including this information at the front of
the Disclosure Document clearly
identifies for growers the live poultry
dealer and the associated broiler
growing arrangement under
consideration.
Under § 201.102(b)(4), the live poultry
dealer engaged in the production of
broilers must include a notice to the
grower that highlights that grower
income may be significantly affected by
decisions made by live poultry dealers,
and encourages growers to carefully
review the information in the Disclosure
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Document. Then, under § 201.102(b)(5),
the dealer must state the minimum
number of poultry placements on the
broiler grower’s farm annually and the
minimum stocking density for each
flock to be placed under the broiler
growing arrangement. The minimum
stocking density is the ratio that reflects
the minimum weight of poultry per
facility square foot the live poultry
dealer intends to harvest from the
grower following each growout.
New broiler growers may not
understand how the discretionary
actions of live poultry dealers affect
grower payments. Many broiler growers
are paid based on farm weight
multiplied by a feed conversion
variable. A live poultry dealer
exercising discretion in placements,
stocking density, and target weight is
directly affecting that farm weight basis.
Cautioning growers about the potential
impact of dealer-controlled inputs and
providing growers with the minimum
number of flocks and minimum stocking
density of flocks to be placed with the
grower annually under the broiler
growing arrangement will help growers
assess the projected baseline value of
their broiler growing arrangement.
Under § 201.102(b)(6), the live poultry
dealer engaged in the production of
broilers must include one of two
alternative statements depending on
whether the offered broiler growing
arrangement includes housing
specifications that require or could
reasonably require an original or
additional capital investment. If the
new, renewed, revised, or replacement
broiler growing arrangement does not
contemplate modifications to existing
housing specifications, the dealer must
include the statement in
§ 201.102(b)(6)(i) in the Disclosure
Document cover pages. The dealer’s
statement explains the grower’s right to
read the Disclosure Document and all
accompanying documents carefully, and
notes that the live poultry dealer is
required to provide the current or
prospective broiler grower with the
Disclosure Document and a copy of the
broiler growing arrangement at least 14
calendar days before the dealer executes
the broiler growing arrangement,
provided that the grower may waive up
to 7 calendar days of that time period.
This timing has been amended to match
the revised timing in the final rule, as
explained above. Alternatively, if the
dealer offers a new broiler growing
arrangement that requires the current or
prospective broiler grower to make an
original capital investment, as in
§ 201.102(a)(2), or offers or imposes
modifications to existing housing
specifications that could reasonably
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83219
require the current broiler grower to
make an additional capital investment,
as in § 201.102(a)(3), the dealer must
include the statement in
§ 201.102(b)(6)(ii).
The statement in § 201.102(b)(6)(ii)
explains the grower’s right to read the
Disclosure Document and all
accompanying documents carefully, and
notes that the live poultry dealer
engaged in the production of broilers is
required to simultaneously provide the
broiler grower with the Disclosure
Document, a copy of the broiler growing
arrangement, the new or modified
housing specifications, and the letter of
intent. These required statements in the
Disclosure Document cover pages will
notify broiler growers of their rights
under the regulations and indicate what
documents they must receive from the
live poultry dealer within the described
timeframes.
Under § 201.102(b)(7), the live poultry
dealer engaged in the production of
broilers must include a statement
notifying the broiler grower that the
terms of the broiler growing
arrangement will govern the grower’s
relationship with the live poultry
dealer’s company. The statement further
notifies broiler growers of their right,
notwithstanding any confidentiality
provision in the broiler growing
arrangement, to discuss the terms of the
broiler growing arrangement and the
Disclosure Document with a Federal or
State agency; the grower’s financial
advisor, lender, legal advisor, or
accounting services representative;
other growers for the same live poultry
dealer; and a member of the grower’s
immediate family or a business
associate. The statement explains that a
business associate is a person not
employed by the broiler grower, but
with whom the current or prospective
grower has a valid business reason for
consulting when entering into or
operating under a broiler growing
arrangement.
Finally, § 201.102(b)(8) requires the
live poultry dealer engaged in the
production of broilers to include the
following statement in bold type in the
Disclosure Document cover pages:
‘‘Note that USDA has not verified the
information contained in this document.
If this disclosure by the live poultry
dealer contains any false or misleading
statement or a material omission, a
violation of Federal and/or State law
may have occurred.’’ With this
language, this rule clarifies that the
Disclosure Document is not subject to
agency review prior to submission to
broiler growers, and that legal recourse
may be available for some present and
future controversies related to the
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Disclosure Document and the broiler
growing arrangement.
Paragraph 201.102(c)—Required
disclosures following the cover page—
specifies the information the live
poultry dealer engaged in the
production of broilers must provide in
the Disclosure Document following the
cover pages. Under § 201.102(c)(1), the
dealer must provide a summary of
litigation over the previous 5 years
between the live poultry dealer and any
broiler grower, including the nature of
the litigation, its location, the initiating
party, a brief description of the
controversy, and any resolution.
Information about a live poultry dealer’s
litigation with poultry growers within
the relevant period, particularly the
basis of the litigation and the volume of
litigation relative to the number of
growers with whom the dealer
contracts, will help growers identify
conflict origins and better assess
potential risk of conflict.
Paragraph 201.102(c)(2) requires the
live poultry dealer engaged in the
production of broilers to provide a
summary of all bankruptcy filings in the
previous 5 years by the dealer and any
parent, subsidiary, or related entity of
the live poultry dealer. Bankruptcy of
the live poultry dealer poses a very real
financial risk to grower financial
returns. Recent or current bankruptcy
filing is an indicator of the financial
health of the live poultry dealer, which
a broiler grower may need to consider
when deciding whether to enter or
continue a contractual relationship with
the dealer.
Paragraph 201.102(c)(3) requires the
live poultry dealer engaged in the
production of broilers to provide a
statement that describes the dealer’s
policies and procedures regarding the
potential sale of the broiler grower’s
farm or assignment of the broiler
growing arrangement to another party.
This information is important for broiler
growers to have when considering a
broiler growing arrangement because
growers may choose or be forced to exit
poultry farming for various reasons,
such as the death or disability of the
grower or the prospect of other
occupational opportunities. However, in
some situations, farm sales and
assignments might be contingent on
approval from the live poultry dealer.
Growers informed of these policies and
procedures can develop a coherent
strategy, should they desire to exit
poultry farming.
Paragraph 201.102(c)(4) contains new
requirements for the live poultry dealer
engaged in the production of broilers to
disclose their policies and procedures,
as well as any appeal rights, arising
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from increased lay-out time; sick,
diseased, and high early mortality
flocks; natural disasters, weather events,
or other events adversely affecting the
physical infrastructure of the local
complex or the grower facility; other
events potentially resulting in massive
depopulation of flocks affecting grower
payments; feed outages including outage
times; and grower complaints relating to
feed quality, formulation, or suitability.
If no policy or procedure exists, the live
poultry dealer must acknowledge ‘‘no
policy exists’’ for each item listed in
§ 201.102(c)(4)(i)–(vi). The rule is not
intended to require live poultry dealers
to have polices for every listed
occurrence, nor is the rule intended to
have a legal consequence for simply not
having a policy. Disclosing, however,
that no policy exists is important to the
poultry grower for risk assessment
during the contracting process, and for
protection against arbitrary undisclosed
policies or procedures when the listed
situations arise during the operation of
the contract. The live poultry dealer will
also be required to describe any policies
on grower appeal rights associated with
these events should a grower disagree
with the live poultry dealer’s actions or
determinations.
Paragraph 201.102(c)(5) adds a new
requirement for live poultry dealers
engaged in the production of broilers to
disclose broiler grower turnover data.
Specifically, the live poultry dealer will
be required to provide a table showing
the average annual broiler grower
turnover rates for the previous calendar
year and the average broiler grower
turnover rates of the 5 previous calendar
years at both a company level and a
local complex level. The broiler grower
turnover rate is the number of grower
separations during the time period
divided by the average number of
growers during the same period. The
broiler grower turnover rate relates to
the general risk of contracting with a
live poultry dealer. Growers may
compare the turnover rates of multiple
live poultry dealers as a consideration
in assessing relative risk when making
contracting decisions. Instructions for
calculating and normalizing table values
are provided on Form PSD 6100 (OMB
Control No. 0581–0308).
Under § 201.102(d)—Financial
disclosures—live poultry dealers
engaged in the production of broilers
must provide certain additional
information in the Disclosure
Document. Under § 201.102(d)(1), live
poultry dealers will be required to
provide in the Disclosure Document
tables showing quintiles of average
annual gross payments to broiler
growers at the local complex for each of
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the previous 5 years.58 If there are nine
or fewer growers at a local complex, live
poultry dealers will not be required to
report quintiles of average annual gross
payments as this would result in the
disclosure of the unique payment
information of one or more growers.
Unique payment information is
considered confidential business
information. For local complexes with
nine or fewer growers, live poultry
dealers will be required to report only
the mean and one standard deviation
from the mean of the average annual
gross payment to growers at the local
complex. Average payments must be
shown in U.S. dollars per farm facility
square foot. Further, the required tables
must be organized by year, housing
specification tier, and quintile or mean
and standard deviation.59 Instructions
for calculating and normalizing table
values are provided in Form PSD 6100.
This rule adds to § 201.2 a definition for
complex, meaning a group of local
facilities under the common
management of a live poultry dealer.
The definition states that a complex
may include, but not be limited to, one
or more hatcheries, feed mills,
slaughtering facilities, or poultry
processing facilities.
The required disclosure of historical
revenue information relating to growers
in the same local complex will give the
current or prospective broiler grower
considering entering into a broiler
growing arrangement a clear and
accurate picture of potential earnings
under the arrangement and help the
grower evaluate whether those earnings
are sufficient. Providing insights into
the variability of cash flow within any
given year will enable growers to make
informed business decisions, manage
risk, and improve farm management.
Paragraph 201.102(d)(2) provides that,
if the housing specifications for poultry
growers under contract with the live
poultry dealer in the local complex are
modified so that an additional capital
58 The word ‘‘local’’ in this discussion is used to
differentiate between the complex with which the
grower may be considering a contract and all the
other complexes a dealer may own.
59 Most dealers do not own or operate growout
and breeder facilities, but they do own everything
else around which the growout facilities are
organized—i.e., the complex. The complex
commonly includes the processing plant and feed
mill and may include other production facilities.
Growers produce for a particular local complex,
even though the dealer may own more than one
local complex and other complexes around the
country. Depending on the technical needs for
optimizing poultry growth for each product type,
the dealer may have multiple different housing
specifications for growers who produce different
products for the complex. Therefore, the required
table will show average payments to growers in
each of the different housing specifications at the
complex.
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investment may be required, or if for
some other reason annual gross payment
averages for the previous 5 years do not
accurately represent expected future
grower payment averages, the
Disclosure Document must provide
additional information. The additional
information includes annual payment
projections by quintile or mean and
standard deviation (depending on the
number of growers at the local
complex). The projections must reflect
anticipated payments to growers under
contract with the complex with the
same housing specifications for the term
of the applicable broiler growing
arrangement. The dealer also must
explain why the historical data does not
provide an accurate representation of
future earnings. Live poultry dealers
engaged in the production of broilers
considering or undertaking actions
related to discretionary functions, such
as changes in pay rates, pay systems,
housing specifications, growout models,
stocking densities, or number of annual
placements, must provide grower
payment projections to allow growers to
determine the financial feasibility of the
upgrades and make better-informed
business decisions. Standardized grower
payment projections will include
realistic expectations about future
earnings.
Paragraph 201.102(d)(3) requires the
live poultry dealer engaged in the
production of broilers to provide a
summary of any information the dealer
collects or maintains pertaining to
grower variable costs inherent to broiler
production. A conforming change, for
clarity and emphasis purposes, to
§ 201.2 adds a definition for grower
variable costs to mean those costs
related to poultry production that may
be borne by the poultry grower, which
may include, but are not limited to,
utilities, fuel, water, labor, repairs and
maintenance, and liability insurance.
The modified language is intended to
help improve readability; the listed
costs are not required to be treated as
grower variable costs under a poultry
growing arrangement if the parties
choose to contract for them in some
other manner. Receiving information on
grower variable costs will allow broiler
growers to make informed decisions
about their participation in the broiler
production business.
Finally, under § 201.102(d)(4), the live
poultry dealer engaged in the
production of broilers must supply the
contact information for the State
university extension service office or the
county farm advisor’s office that can
provide relevant information to the
current or prospective broiler grower
about grower costs and broiler farm
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financial management in the grower’s
geographic area.
Paragraph 201.102(e)—Small live
poultry dealer financial disclosures—
exempts from the requirement to
provide the Disclosure Document
required under § 201.102(a)(1) live
poultry dealers engaged in the
production of broilers that, together
with all companies controlled by or
under common control with the dealer,
slaughter fewer than 2 million live
pounds of broilers weekly (104 million
pounds annually). The exemption
applies to these small operators as long
as their housing specifications are static.
If their housing specifications are
modified, requiring an additional
capital investment from growers, these
smaller operators will be required to
provide the complete Disclosure
Documents, as specified in
§ 201.102(a)(2) or (a)(3), to balance any
financial risk of the new investment.
AMS proposed—and retains this
exemption in the final rule—because, in
general, smaller operators are in discrete
market segments and not engaged in the
same market practices that are as likely
to deceive as larger live poultry dealers’
practices, which reduces the risks to
growers and the need for the disclosures
mandated in this rule. Examples of such
market practices include allowing
growers to be responsible for providing
some inputs (e.g., feed), allowing
growers to use older growout facilities,
or granting growers more discretion in
production decisions. Additionally,
AMS will continue to monitor the
impact of this rule on small businesses
to ensure that its analysis is correct and
to determine whether enforcement
discretion may be appropriate.
This final rule adds new
§ 201.102(f)—Governance and
certification, which requires the live
poultry dealer engaged in the
production of broilers to establish,
maintain, and enforce a governance
framework designed to review and
ensure the accuracy and completeness
of the Disclosure Document, and ensure
the live poultry dealer’s compliance
with all its obligations under the Act
and its regulations. The governance
framework and anti-fraud protections
require oversight by corporate officers
and ensure legal accountability. Under
§ 201.102(f), the framework must be
reasonably designed to audit the
accuracy and completeness of
disclosures under the Disclosure
Document and ensure compliance with
the Act and associated regulations. The
principal executive officer of the live
poultry dealer’s company, or a person
performing similar functions, must
certify that the company complies with
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the governance framework requirement
and that the Disclosure Document is
accurate and complete. The certification
requirement is tailored to ensure the
soundness and accuracy of the
procedures used to produce the
Disclosure Document and the
information contained therein.60
The framework requirement helps
ensure that the company has in place
specific steps that it will take to comply
with this rule. It seeks to balance
effectiveness at providing the internal
controls necessary for reliable
disclosure with some degree of
flexibility to enable dealers to design a
framework appropriate to manage the
risks relating to the preparation of
complete and accurate disclosures given
their own particular operations.
As explained earlier, to simplify
compliance with this requirement, AMS
has developed instructions for
compiling the Disclosure Document,
Form PSD 6100, with standardized
language that live poultry dealers can
use. The language includes a
certification statement the principal
executive officer of the live poultry
dealer’s company, or a person
performing similar functions, must sign.
Section 201.102(g)—Receipt by
growers—requires a live poultry dealer
engaged in the production of broilers to
include in the Disclosure Document a
signature page. The signature page
includes a statement highlighting the
requirements for timely delivery of the
disclosure document, potential liability
for a false or misleading statement or a
material omission, and how to contact
USDA to file a complaint at its website
or by telephone.
The live poultry dealer must also
obtain the current or prospective
grower’s dated signature on the
signature page, or obtain alternative
documentation to evidence delivery and
that the dealer used best efforts to obtain
grower receipt according to the
specified timeframes. The dealer must
provide a copy of the dated signature
page or alternative documentation to the
grower and retain a copy of the dated
signature page or alternative
documentation in the dealer’s records
60 Certification of regulatory compliance
requirements is found in several regulatory regimes
involving important market compliance protocols.
These include section 302 of the Sarbanes-Oxley
Act (Pub. L. 107–204; 116 Stat. 745) and Title XIII
of the Bank Holding Company Act (12 U.S.C. 1851
et seq.) and regulations thereunder, commonly
known as the Volcker Rule, including revisions
designed to simplify the rule. See ‘‘Subpart D—
Compliance Program Requirements’’ (12 CFR
248.20 and discussion in 79 FR 5535); ‘‘Revisions
to Prohibitions and Restrictions on Proprietary
Trading and Certain Interests in, and Relationships
With, Hedge Funds and Private Equity Funds’’ (84
FR 61974).
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for 3 years following expiration,
termination, or non-renewal of the
broiler growing arrangement. Including
the required statement informs growers
that false or misleading statements or
material omissions contained in the
Disclosure Document may form a basis
for legal action. Requiring live poultry
dealers to collect and retain proof of
compliance will ensure compliance
with the regulation.
Paragraph 201.102(g) also contains
new clear language and translation
requirements for the document. Under
§ 201.102(g)(3), the Disclosure
Document must be presented in a clear,
concise, and understandable manner for
growers, and it references Form PSD
6100 for guidance on the presentation of
the information and required
calculations. Under § 201.102(g)(4), the
live poultry dealer must make
reasonable efforts to ensure that growers
are aware of their right to request
translation assistance, and to assist the
grower in translating the Disclosure
Document at least 14 calendar days
before the live poultry dealer executes
the broiler growing arrangement that
does not contemplate modifications to
the existing housing specifications
(provided that the grower may waive up
to 7 calendar days of that time period).
For a broiler growing arrangement that
does contemplate modifications to the
existing housing specifications, the
translation assistance must be provided
when the live poultry dealer provides
the Disclosure Document to the grower.
Reasonable efforts include but are not
limited to providing current contact
information for professional translation
service providers, trade associations
with translator resources, relevant
community groups, or any other person
or organization that provides translation
services in the broiler grower’s
geographic area. Reasonable efforts may
also include allowing additional time to
review the translated Disclosure
Document. A live poultry dealer may
not restrict a broiler grower or
prospective broiler grower from
discussing or sharing the Disclosure
Document for purposes of translation
with a person or organization that
provides language translation services.
AMS also added a provision to
§ 201.100 preventing live poultry
dealers from restricting growers from
sharing the Disclosure Documents with
legal counsel, accountants, family,
business associates, and financial
advisors or lenders.
Nothing in the rule prevents
companies from providing a translation,
provided it is complete, accurate, and
not misleading. As indicated previously,
this rule is intended to improve
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transparency in poultry production
contracting by providing poultry
growers with relevant information to
make more informed business decisions.
These new requirements will enable the
prospective or current poultry grower to
better understand the information
provided in the disclosures.
C. Contract Terms
Currently, § 201.100(c)—Contracts;
contents—specifies certain information
that must be included in a poultry
growing arrangement. The live poultry
dealer is required to specify the
duration of the contract and conditions
for termination of the contract by each
of the parties, all terms relating to the
poultry grower’s payment, and
information about a performance
improvement plan for the grower, if one
exists. In the final rule, AMS did not
reduce the requirements in § 201.100(c)
for all live poultry dealers. AMS adds
new § 201.102(h)—Contract terms—
introducing additional requirements
that apply exclusively to live poultry
dealers engaged in the production of
broilers. Paragraph 201.102(h) requires
live poultry dealers engaged in the
production of broilers to specify the
minimum number of placements to be
delivered to the broiler grower’s farm
annually in each year of the contract, as
well as the minimum stocking density
of each of those placements. The
minimum number of placements and
the minimum stocking density of each
placement under the broiler growing
arrangement directly impact broiler
grower revenues. Both figures are
crucial to a current or prospective
grower’s ability to evaluate potential
earnings under the contract and their
ability to meet financial obligations.
Requiring live poultry dealers engaged
in the production of broilers to include
this information in broiler growing
contracts will improve growers’ ability
to understand and evaluate contracts
offered by dealers, and prevent
deceptive practices in the contracting
process. Providing such information
may also allow lenders and guarantors
to better evaluate the desirability of
broiler loans they are asked to consider.
D. Poultry Grower Ranking Systems
AMS adds a new § 201.104—
Disclosures for broiler grower ranking
system payments. This new section
applies exclusively to live poultry
dealers engaged in the production of
broilers who use a poultry grower
ranking system to calculate broiler
grower payments. New § 201.104
specifies the recordkeeping and
disclosure requirements for such
dealers. AMS amends § 201.2 to add
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definitions for terms used in new
§ 201.104. In addition, § 201.100(f) of
the current regulations, which contains
requirements for grouping or ranking
sheets and which AMS proposed to
remove in the proposed rule, is retained
in the final rule to reflect that the
existing grouping or ranking sheet
requirements continue to apply to all
live poultry dealers, while the
additional grouping or ranking sheet
requirements at § 201.104(c) apply
exclusively to live poultry dealers
engaged in the production of broilers.
Currently, live poultry dealers are
required under the regulations at
§ 201.100(d) to furnish poultry growers
in poultry grower ranking systems with
settlement sheets that show the grower’s
precise position in the ranking for that
tournament. AMS adds a requirement in
new § 201.104(a)—Poultry grower
ranking system records—that requires a
live poultry dealer engaged in the
production of broilers who calculates
payment under a poultry grower ranking
system to produce and maintain records
showing how certain inputs were
distributed among participants. Further,
the dealer must maintain those records
for 5 years. Maintaining records allows
USDA or any other party with the
proper legal authority to collect the
records and access to records during an
investigation or legal action. AMS adds
to § 201.2 the term poultry grower
ranking system, meaning a system
where the contract between the live
poultry dealer and the poultry grower
provides for payment to the poultry
grower based upon a grouping, ranking,
or comparison of poultry growers
delivering poultry during a specified
period. AMS also adds the term inputs
to § 201.2. Inputs is defined as the
various contributions to be made by the
live poultry dealer and the poultry
grower as agreed upon by both under a
poultry growing arrangement. The
definition also states that such inputs
may include, but are not limited to,
animals, feed, veterinary services,
medicines, labor, utilities, and fuel.
Paragraph 201.104(b)—Placement
disclosure—requires a live poultry
dealer engaged in the production of
broilers who uses a poultry grower
ranking system to calculate broiler
grower payments to provide certain
information about the flock placed with
the broiler grower within 24 hours of
the placement on the grower’s farm.
Specifically, the dealer must provide the
flock’s stocking density, expressed as
the number of poultry per facility square
foot; the names and ratios of breeds of
the flock delivered; the ratios of male
and female birds in the flock if the sex
had been determined; the breeder
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facility identifier; the age of the egglaying breeder flock from which each
broiler grower’s placement is produced;
information regarding any known health
impairments of the breeder flock and of
the poultry delivered to the broiler
grower; and what, if any, adjustments
will be made to grower pay to reflect
any of these inputs. As explained earlier
in this document, each of these inputs
may influence farm weight and feed
conversion. In some cases, a broiler
grower may adjust management
practices in response to potential
impacts of inputs on flock performance.
This requirement provides the broiler
grower with basic, accurate information
about the placement at the outset of
each growout period that may inform
the grower’s management decisions
during growout. Armed with this
information, growers may be better able
to efficiently allocate resources during
flock growout and maximize their
individual profitability.
This rule adds definitions to § 201.2.
Breeder facility identifier is defined as
the identification a live poultry dealer
permanently assigns to distinguish
among breeder facilities supplying eggs
for the poultry placed at the poultry
grower’s facility. As permanent
identifiers, these identifiers must be
consistent flock to flock. Identifiers that
remain the same from one growout
period to the next allow growers to
observe patterns, if any, related to the
performance of flocks originating with
different breeders. Live poultry dealers
may assign alphabetic, numeric, or other
identifiers to each farm to keep the
identity of individual breeder facilities
private.
Breeder flock age means the age in
weeks of the egg-laying flock that is the
source of poultry placed at the poultry
grower’s facility. Depending on the type
and breed of poultry being raised, the
age of the breeder flock producing the
eggs from which poultry for growout are
produced may influence the grower’s
production decisions, for example,
whether additional monitoring is
necessary, or determining the
appropriate height of waterers and
feeders.
Under § 201.104(c)—Poultry grower
ranking system settlement documents—
a live poultry dealer engaged in the
production of broilers employing a
poultry grower ranking system to
calculate settlement payments for
broiler growers must provide every
grower within the tournament ranking
system with settlement documents that
show certain information about each
grower’s ranking within the system, as
well as the inputs each broiler grower
received, for each growout period.
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Paragraph 201.104(c)(1) requires live
poultry dealers engaged in the
production of broilers to show the
housing specifications for each grower
grouped or ranked in the system during
the specified growout period.
Paragraph 201.104(c)(2) requires live
poultry dealers engaged in the
production of broilers to make visible to
all grower participants in the poultry
grower ranking system the distribution
of dealer-controlled inputs provided to
all participants. Specifically, dealers
must disclose the stocking density at
each grower’s placement, expressed as
the number of poultry per facility square
foot. The dealer must: disclose the
names and ratios of the breeds of
poultry and the ratios of male and
female poultry, if the sex of the poultry
has been identified (i.e., ‘‘sexed’’),
placed at each broiler grower’s farm;
indicate with the use of breeder facility
identifiers the source of poultry placed
at each broiler grower’s farm; disclose
the age of the egg-laying breeder flock
from which each broiler grower’s
placement is produced; and, report the
number of feed disruptions of 12 hours
or more each grower experienced during
the growout period.
As mentioned above, live poultry
dealers are currently required to provide
settlement sheets showing each grower’s
ranking within the poultry grower
ranking system and to show the actual
figures used to rank poultry growers for
settlement purposes. However, poultry
growers, in particular broiler chicken
growers, have complained to USDA that
the limited information they receive
does not allow them to effectively
evaluate their performance compared to
others because they do not know how
the inputs they receive compare to the
inputs other growers receive. Nor do
they know how their performance
relates to housing specifications.
Further, some growers believe other
growers within the same poultry grower
ranking system receive superior inputs
to their own.
The placement and settlement
information required under § 201.104
will enable broiler growers to make
factual comparisons about their
performance relative to other growers’
performance within the poultry grower
ranking system.
E. Severability
AMS considers some but not all of the
provisions of this final rule to be
severable. Specifically, changes to
§ 201.100—Records to be furnished
poultry growers and sellers, and the
provisions of new §§ 201.102—
Disclosures for broiler production, and
201.104—Disclosures for broiler grower
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ranking system payments, are generally
severable within themselves and from
each other. Thus, if a court were to find
any of, some combination of, or some
portion of those provisions to be
unlawful or unenforceable, AMS
intends that all other provisions as set
forth in this rule would remain in effect
to the maximum possible extent.
For example, if a court were to find
one of the required disclosure items in
§ 201.102(c) or (d) unlawful, AMS
would nevertheless intend the
remaining disclosure requirements in
§ 201.102 to stand. However, provision
of those disclosures to broiler growers is
dependent upon the requirement to do
so in § 201.102(a), so AMS would intend
that paragraph (a) in § 201.102 is not
severable from paragraphs (c) or (d). In
another example, AMS intends that the
reference to Form PSD 6100 instructions
in § 201.102 (g)(3) is severable from the
requirement in the same paragraph to
present Disclosure Document
information in a clear, concise, and
understandable manner. Thus, if the
reference to Form PSD 6100 were to be
invalidated, live poultry dealers would
nevertheless be required to include all
the elements of the Disclosure
Document as described § 201.102 in a
clear, concise, and understandable
manner.
AMS considers the provisions of
§ 201.104 to be severable, except that
the requirement to maintain records
related to broiler grower production for
5 years in § 201.104(a) is not intended
to be severable from either paragraph (b)
or (c) of that section. Records pertaining
to the disclosures required in
§ 201.104(b) and (c) must be maintained
and available to PSD for compliance and
enforcement purposes.
AMS considers the changes to
§ 201.1—Terms defined, to be
inseverable, inasmuch as the newly
defined terms in that section are
necessary for the clear application of the
provisions of new §§ 201.102 and
201.104. The new definitions clarify the
fundamental application of the rule to
live poultry dealers, and cannot be
severed from the policy effect of the
rule.
VI. Changes From the Proposed Rule
After consideration of public
comments, AMS determined to adopt
the proposed changes with
modification. This section provides an
overview of how the final rule differs
from the proposed rule. Additional
discussion about AMS’s consideration
of public comments is presented in
Section VII.
Two significant changes between the
proposed rule and the final rule pertain
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to the application of the new disclosure
requirements and the placement of the
new requirements within 9 CFR part
201. Under the proposed rule, AMS
proposed additional disclosures that all
live poultry dealers would be required
to furnish to poultry growers with
whom dealers make poultry growing
arrangements. AMS also proposed to
establish additional disclosure
requirements for live poultry dealers
who use a poultry ranking system to
calculate grower payments. However,
comments received noted that the
proposed rule was largely based on
research into the broiler industry and
would be extremely difficult for turkey
companies to implement due to
differences between turkey and chicken
production. AMS subject matter experts
analyzed turkey production contracts
from across the country and found more
variability among them than in broiler
contracts.61 The variability reflects the
biological differences found in turkeys
and longer placement times with
growers, which can impact outcomes for
producers.62 The variability in contracts
results in less uniformity of grower
compensation models in the turkey
industry. Often, turkey grower
compensation models are predicated on
static square footage payments, and/or
two-stage production, which reduce
payment volatility and mitigate input
variability. Much of the disclosed
information would not be applicable or
of significant value to turkey growers.
While other turkey compensation
models tend to rely on a relative ranking
component similar to that for broilers,
the benefit of disclosure is diluted, as
discretionary dealer actions currently
may have less impact on grower
payments. As well, grower ranking
systems account for a smaller
percentage of grower payments.
Other commenters stated the new
disclosure requirements are largely
meant for the broiler industry where
most complaints arise. AMS has
received few turkey grower complaints.
Other (non-broiler chicken) poultry
growers have similarly not expressed
61 This corresponds with Hyaena, et. al., who
state ‘‘There is . . . more variation among
production contracts with respect to division of
risks and profits from growing turkeys than in the
broiler industry.’’ See M. Hayenga, T. Schroeder, J.
Lawrence, D. Hayes, T. Vukina, C. Ward, and W.
Purcell, ‘‘Meat Packer Vertical Integration And
Contract Linkages in the Beef and Pork Industries:
An Economic Perspective’’ (2003), available at
https://econ2.econ.iastate.edu/faculty/hayenga/
AMIfullreport.pdf (last accessed April 2023).
62 Turkey growers may only produce two flocks
per year while broiler growers may produce five or
more. See Poultry Industry Manual (2013) available
at https://www.aphis.usda.gov/aphis/ourfocus/
animalhealth/emergency-management/CT_
fadprep_Industry_Manuals.
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concerns regarding practices in their
industry. AMS will continue to evaluate
the presentation and operation of
contracts and pay systems in the turkey
industry, and other forms of poultry
production to ensure growers can
understand, evaluate, and compare
contracts. However, AMS has
determined that additional proposed
disclosure requirements are not
warranted for all live poultry dealers at
this time.63 Thus, this final rule’s new
disclosure requirements cover only live
poultry dealers engaged in the
production of broiler chickens.
In the final rule, AMS did not revise
§ 201.100 to require all live poultry
dealers to provide certain additional
disclosures to prospective or current
growers. Instead, disclosure
requirements for dealers engaged in
broiler production are provided in new
§ 201.102—Disclosures for broiler
production—which applies exclusively
to live poultry dealers engaged in the
production of broilers. The final rule
adds language in § 201.102(a) clarifying
that in addition to complying with the
existing requirements in § 201.100, live
poultry dealers engaged in the
production of broilers must comply
with additional disclosure requirements
in new § 201.102.
The proposed rule in § 201.100(a)
would have required a live poultry
dealer engaged in the production of
broilers seeking to renew, revise, or
replace an existing broiler growing
arrangement or to establish a new
broiler growing arrangement that does
not contemplate modifications to
existing housing specifications to
provide both the broiler growing
arrangement and the Disclosure
Document to the grower at least 7
calendar days before the dealer executes
the broiler growing arrangement.
Several commenters from the grower
and advocacy sectors said that this time
period was inadequate, and urged AMS
to require that the documents be
provided 14 days or 30 days in advance
of the broiler growing arrangement’s
execution, to enable adequate time for
growers to review and act upon the
information provided in the documents.
AMS also identified ambiguity in
whether 7 days was business days or
calendar days.
This final rule revises the timing in
§ 201.102(a)(1) to require that live
63 AMS underscores that the principles of full and
fair disclosure by live poultry dealers to avoid
deceptive practices apply throughout the industry,
including with respect to turkey growers. Although
the specific disclosure mandates of this rule will,
at this time, apply only to the broiler chicken
segment, AMS intends to continue to monitor the
entire industry.
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poultry dealers provide growers with
the required documents at least 14
calendar days before the live poultry
dealer executes the broiler growing
arrangement, provided that the grower
may waive up to 7 calendar days of that
time period. AMS is making this change
in response to some grower comments
stating that growers need additional
time to adequately review the
documents. A central purpose of the
Disclosure Document is to improve the
understanding of production agreements
to thwart deception, and adequate time
to review the document is essential to
the rule fulfilling its purpose. The 7-day
waiver addresses other grower
commenter concerns related to
continuity of production. AMS does not
wish to inadvertently insert unnecessary
time delays into the grower’s planning
process during contracting, in particular
as this provision exclusively addresses
the circumstance where the grower is
not contemplating modifications to the
farm housing specifications. The final
rule seeks to maximize the grower’s
ability to determine the length of time
necessary to review the documents,
whether that be a full 14 calendar days
or a shorter time period if the grower
determines that is more appropriate.
The rule revises the review period to 14
calendar days, but provides growers the
option to waive 7 of those days if they
prefer. Seven calendar days remains the
minimum review time to provide
growers with a guaranteed time to
review the documents and thus protects
growers from coercion by live poultry
dealers—a risk also identified by
commenters. Absent the provision, live
poultry dealers could press growers to
waive their entire review period rights.
In AMS’s estimation, a 14-calendar-day
period is useful to some growers to
review and have the time to act on the
documents in the circumstance of no
contemplated housing modification, and
that a 7-calendar-day period is
minimally sufficient to enable growers
to review the Disclosure Documents,
and reduce the potential for coercive
behavior where growers so choose that
shorter time period.
Where a live poultry dealer
contemplates modifications to the
housing specifications—such as in the
circumstance of a new or additional
capital investment or a modification to
the housing specification—this rule
provides the grower with significantly
more time to review the contract and the
Disclosure Document than current
practice. Currently, growers commonly
do not receive their contract until after
a capital investment has occurred. In
this rule, by requiring notice to the
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grower at the same time as the new
housing specification, growers receive
the critical information embedded in the
contract and Disclosure Document
before the grower decides to engage in
any construction or borrowing to make
the necessary housing modifications.
Capital investments generally take
months, not days, and the grower is well
positioned to control his or her review
of the documents in the course of
making any decisions regarding whether
to engage in borrowing, construction, or
contracting in relation to the potential
broiler growing arrangement.
Under proposed § 201.214, AMS
proposed to establish recordkeeping and
disclosure requirements for all live
poultry dealers who use a poultry
grower ranking system to calculate
grower payments. Again, AMS
determined the disclosure requirements
proposed in § 201.214 are not warranted
for all live poultry dealers who use a
poultry grower ranking system to
calculate grower payments based on its
analysis of poultry contracts and grower
complaints, as previously discussed.
Therefore, in the final rule, AMS
modified the proposed requirements to
apply exclusively to live poultry dealers
engaged in the production of broilers
who use a poultry grower ranking
system to calculate grower payments,
moved the requirements from proposed
new § 201.214 to new § 201.104, and
renamed the section ‘‘Disclosures for
broiler grower ranking system
payments.’’ AMS also retained the
requirements in § 201.100(f) of the
current regulations, which it had
proposed to move to new § 201.214 and
modify in the proposed rule. AMS
added language to § 201.104(c) to
indicate that in addition to complying
with the requirements of § 201.100, live
poultry dealers engaged in the
production of broilers who use a poultry
grower ranking system to calculate
grower payments must provide
additional information in accordance
with new § 201.104.
To limit §§ 201.102 and 201.104 in
the final rule to broiler contracts, AMS
added to § 201.2 the definitions of
broiler to mean any chicken raised for
meat production, broiler grower to mean
a poultry grower engaged in the
production of broilers, broiler growing
arrangement to mean a poultry growing
arrangement pertaining to the
production of broilers, and prospective
broiler grower to mean a person or entity
with whom the live poultry dealer is
considering entering into a broiler
growing arrangement.
AMS proposed in § 201.100(b)(5) to
require live poultry dealers to include in
the Disclosure Document the minimum
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number of placements on the grower’s
farm annually and the minimum
stocking density of each flock. In the
final rule, AMS moved this requirement
to § 201.102(b)(5), which only applies to
live poultry dealers engaged in the
production of broilers. AMS also revised
the introductory statement in
§ 201.102(b)(5) of the final rule to add
clarifying language.
AMS proposed to require live poultry
dealers to disclose a summary of all
litigation with any poultry grower over
the prior 6 years, as well as of all
bankruptcy filings over the prior 6 years
for the dealer and any parent,
subsidiary, or related entity. However,
commenters representing the poultry
industry noted that the 6-year disclosure
period associated with these
requirements was inconsistent with
other disclosure requirements covering
the prior 5 years. Therefore, to ensure
the uniformity of recordkeeping
obligations and to reduce the burden on
regulated entities, AMS revised
§§ 201.102(c)(1) and (2) to require live
poultry dealers engaged in the
production of broilers to disclose
litigation with any broiler grower over
the prior 5 years, as well as bankruptcy
filings in the prior 5 years by the dealer
and any parent, subsidiary, or related
entity.
The proposed rule would have
required live poultry dealers to make
various financial disclosures to poultry
growers, including a table showing
‘‘average annual gross payments’’ made
to growers at all complexes owned or
operated by the live poultry dealer for
the previous calendar year, as well as to
growers at the local complex. Poultry
and meat trade associations suggested
AMS require dealers to disclose average
annual gross payments only for the
grower’s local complex. These
commenters noted that complexes in
different geographic areas face different
economic conditions, arguing that
information about payments at other
complexes would not be useful and
would potentially confuse growers. This
final rule does not include the proposed
requirement to disclose payment
information for all complexes owned or
operated by the dealer. This final rule
does maintain the proposed requirement
for live poultry dealers engaged in the
production of broilers to disclose
payment information only relating to
the broiler grower’s local complex at
§ 201.102(d)(1).
Both growers and live poultry dealers
also requested that AMS provide more
specificity on how to calculate average
annual gross payments. While the
proposed rule provided detail on
calculations, the commenters felt the
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instructions lacked sufficient specificity
to assure that live poultry dealers could
comply and that poultry growers
received adequate data on which to base
business decisions. Therefore, AMS
developed more in-depth instructions
on how to calculate average annual
gross payments, which are included in
Form PSD 6100. This final rule provides
that, if there are nine or fewer growers
at a local complex, live poultry dealers
will be required to report only the mean
and one standard deviation from the
mean of the average annual gross
payment to growers at the local complex
rather than average annual gross
payments distributed by quintile. This
modification from the proposed rule is
necessary because disclosing average
annual gross payments distributed by
quintile in these circumstances would
result in disclosure of the unique
payment information of one or more
growers, which AMS considers to be
confidential business information.
AMS added to § 201.2 the definition
of gross payments to mean the total
compensation a poultry grower receives
from the live poultry dealer, including
but not limited to base payments, new
housing allowances, energy allowances,
square footage payments, extended layout time payments, equipment
allowances, bonus payments, additional
capital investment payments, poultry
litter payments, etc., before deductions
or assignments are made.
In the proposed rule, AMS requested
comment on proposed disclosures
regarding the financial health and
integrity of the live poultry dealer, and
whether those were adequate to enable
growers to make sound business
decisions. Commenters suggested that
growers could utilize other information
in addition to information specified in
the proposed rule in making their
business decisions. Specifically,
commenters recommended that AMS
also require disclosure of grower
turnover data. Grower turnover rates are
among the data growers may find
valuable when making business
decisions, as they relate to the risk of
termination or non-renewal when
contracting with a live poultry dealer.
Just as growers will be able to rely on
other required disclosures to
contemplate their production and
financial risks, this information would
allow growers to compare the turnover
rates of multiple live poultry dealers as
a risk factor when making contracting
decisions. Because grower turnover
rates can be used in a manner similar to
other required disclosures, AMS added
a provision at § 201.102(c)(5) of the final
rule requiring live poultry dealers
engaged in the production of broilers to
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disclose average annual broiler grower
turnover rates for the previous calendar
year and the average of the 5 previous
calendar years at both the company
level and the local complex level.
Instructions for how to calculate average
annual broiler grower turnover rates are
included in Form PSD 6100.
AMS proposed requirements for
several disclosures of specific data and
information advising growers of their
rights. AMS did not specifically propose
to require live poultry dealers to
disclose their policies on grower
payment with respect to increased layout time, diseased flocks, natural
disasters and other depopulation events,
feed issues or outages, or policies on
grower appeal rights and processes,
although in the proposed rule, AMS
asked whether the final rule should
require disclosures on these types of
topics. Multiple commenters suggested
AMS include these disclosures. The
commenters stated that these
disclosures would aid growers in
decision making and reduce confusion
during times of disease or other disaster.
Therefore, this final rule requires live
poultry dealers engaged in the
production of broilers to disclose
policies and procedures on increased
lay-out time; sick, diseased, or high
early-mortality flocks; natural disasters,
weather events, or other events
adversely affecting the physical
infrastructure of the local complex or
the grower facility; other events
potentially resulting in massive
depopulation of flocks, affecting grower
payments; feed outages including outage
times; and grower complaints relating to
feed quality, formulation, or suitability,
as well as any appeal rights arising out
of these events.
The proposed rule proposed to
exempt live poultry dealers, including
all parent and subsidiary companies,
slaughtering fewer than 2 million live
pounds of poultry weekly (104 million
pounds annually) from the Disclosure
Document requirements if the new,
renewed, or replacement contract
offered by one of these dealers does not
include revisions to existing housing
specifications that would require the
grower to make new or additional
capital investments. This final rule
limits the proposed exemption to clarify
that the exemption applies if the live
poultry dealer engaged in the
production of broilers that together with
all companies controlled by or under
common control with the dealer
slaughter fewer than 2 million live
pounds of poultry weekly (104 million
pounds annually).
The proposed rule would have
required dealers to establish, maintain,
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and enforce a governance framework
reasonably designed to audit the
accuracy and completeness of the
disclosures in the Disclosure Document,
which must include audits and testing,
as well as reviews of an appropriate
sampling of Disclosure Documents by
the principal executive officer or
officers. AMS determined that the
requirement in § 201.102(f)(2) for the
principal executive officer or officers to
certify the governance framework and
the accuracy of the Disclosure
Document adequately covers the
intended requirement for officers of this
level to be focused on the effectiveness
of the governance framework. AMS
concluded that this level of detail about
the audit process for the Disclosure
Document was not necessary, because
AMS finds the certification requirement
regarding the governance framework to
be sufficient to ensure a reasonable level
of accuracy of these statements. The
company will still need to maintain a
governance framework for ensuring the
reliability of the statements, which the
certification attests to. The principal
executive officer will need to tailor the
framework to the particular levels of
complexity of the company and its
poultry business, its approach to
internal controls, and other factors such
as its track record of regulatory
compliance, to ensuring the accuracy of
statements.
In some circumstances, audit, testing,
and reviews by senior officers may be
necessary to ensure compliance, but that
may not be the case in all
circumstances. The requirements of this
final rule place the opportunity—and
the responsibility—on the principal
executive officer to tailor the needs of
the compliance program to the
particulars of the business and its own
compliance culture, as reflected in the
governance framework. A ‘‘reasonably
designed’’ framework depends on the
particular facts and circumstances of the
poultry company and its growers, with
larger, more complex processors
adopting more comprehensive systems
appropriate to the scope of their
operations. AMS will evaluate the
effectiveness of the governance
framework in part through examining
the reliability of producing accurate
disclosures but may also examine a
dealer’s internal controls and other
factors relevant to the facts and
circumstances of the dealer, such as its
recent track record of compliance with
relevant laws and regulations.
AMS will investigate questions of
statement inaccuracy and may take
enforcement actions against companies
that do not maintain sufficient
governance frameworks. Violations may
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result in issuance of a Notice of
Violation or referral to the Attorney
General of the United States for
prosecution pursuant to Section 404 of
the P&S Act, 7 U.S.C. 224. Growers may
also bring private cases in response to
inaccurate or misleading disclosures
under the Act or under other laws.
Therefore, AMS removed the
requirement proposed in
§ 201.100(f)(1)(i) for audit, testing, and
reviews of an appropriate sampling of
Disclosure Documents by the principal
executive officer or officers.
The proposed rule would have
required dealers to include a statement
on the Disclosure Document’s grower
signature page advising growers that a
dealer’s failure to deliver the document
within the required timeframe, as well
as false or misleading statements or
material omissions within the
Disclosure Document, may violate
Federal and State laws, and that such
violations could be determined to be
unfair, unjustly discriminatory, or
deceptive and unlawful under the Act.
The proposed statement further
informed growers that allegations of
such violations could be reported to
AMS’s PSD. The final rule retains the
required advisory statements; however,
they have been modified to inform
growers they may submit complaints to
USDA’s Farmer Fairness portal at
https://www.usda.gov/farmerfairness or
by telephone at 1–833–DIAL–PSD (1–
833–342–3773) if they suspect a
violation of the Act or any other Federal
law governing fair and competitive
markets, including contract growing, of
livestock and poultry.
The proposed rule would have
required live poultry dealers to obtain a
poultry grower’s signature to verify
delivery of the Disclosure Document.
Live poultry dealers noted that there
may be instances in which obtaining a
grower signature is not possible, such as
grower unavailability or refusal to sign.
AMS recognizes there is no mechanism
to require growers to sign for receipt of
the Disclosure Document. Commenters
said it is appropriate in these instances
to have other means available for the
live poultry dealer to verify delivery of
the Disclosure Document to the grower.
AMS agrees it is necessary to have
alternative methods of compliance.
Therefore, this final rule allows
flexibility for live poultry dealers
engaged in the production of broilers to
have alternative means to prove delivery
and to demonstrate that best efforts were
used to obtain grower receipt. In those
circumstances, this final rule does not
require a specific method of delivery but
requires dealers to obtain and maintain
evidence that the live poultry dealer
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delivered the Disclosure Document to
the grower or prospective grower in the
required timeframe and that best efforts
were used to obtain grower receipt.
Based on its experience, AMS expects
live poultry dealers to engage in
personal communications with the
growers in the course of the contracting
process, and so expects that best efforts
include personal communication with
growers in the course of delivering the
Disclosure Document and seeking
grower receipt. Where a grower refuses
to sign or has made him or herself
unavailable to the live poultry dealer,
alternative documentation includes
proof of delivery and statements or
affidavits to support the communication
and grower’s refusal to sign receipt, or
the circumstances of the grower’s
unavailability. AMS expects
unavailability to be a rare circumstance
requiring exceptional justification, given
the nature of the contracting process
between live poultry dealers and
growers. The proof of delivery and bestefforts requirement, as an alternative,
provide the best assurance possible in
those circumstances that the grower
receives and is able to evaluate in a
timely manner the Disclosure
Document. The grower receipt
requirement, and this alternative, is
important to AMS achieving the
purposes of the rule because it
minimizes the risk that live poultry
dealer may deliver the Disclosure
Document through means that may, in
practice, not be read or noticed by the
grower under the time frames provided,
and so obstruct the purposes of ensuring
the grower can evaluate the information
before the grower makes significant
decisions. AMS notes that grower and
advocacy commenters supported the
retention of the grower receipt
requirement principally for those
purposes.
The proposed rule would have
required live poultry dealers to make
several disclosures to poultry growers
but did not include the exact language
and wording they should use.
Numerous commenters from the grower
and live poultry dealer sectors said that
these provisions should be in plain and
unambiguous language to avoid
discrepancies in interpretation among
the various parties, regulators, and
courts. One purpose of the Disclosure
Document is to improve the
understanding of production agreements
to thwart deception; thus clear, concise,
and understandable language is
necessary. Therefore, this final rule adds
a new § 201.102(g)(3) to the final rule to
require live poultry dealers engaged in
the production of broilers to present the
information in the Disclosure Document
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in a clear, concise, and understandable
manner for growers. Paragraph
§ 201.102(g)(3) also notes that dealers
may refer to Form PSD 6100 for further
instructions on the presentation of
information and certain calculations.
Some commenters also indicated a
need to ensure growers who are not
native speakers of English can
understand the disclosures. As noted by
multiple commenters, non-native
speakers of English are engaged in
poultry growing. For example, in the
early 2000s, large numbers of firstgeneration immigrant Hmong people,
many of whom had been farmers in
their native Laos, moved from urban
areas in California, Minnesota, and
North Carolina to the Ozark region in
and around southwest Missouri and
started growing poultry. Pew Research
Center studies show that the English
proficiency of the Hmong population in
the U.S. in 2019 was only 68% and,
among foreign-born Hmong, English
proficiency is just 43%.64 Data supports
the concerns expressed by commenters
regarding providing poultry growers
information in a manner growers are
able to understand. AMS agrees that
providing documents in the language
growers best understand ensures
fairness and reduces the risk of
deception. Therefore, AMS added new
§ 201.102(g)(4) to the final rule to
require that live poultry dealers must
make reasonable efforts to ensure that
growers are aware of their right to
request translation assistance and to
assist the grower in translating the
Disclosure Document. This must be
provided at least 14 calendar days
before the live poultry dealer executes
the broiler growing arrangement that
does not contemplate modifications to
the existing housing specifications
(provided that the grower may waive up
to 7 calendar days of that time period).
Where modifications to the existing
housing specifications are
contemplated, it must be provided when
the live poultry dealer provides the
grower with the Disclosure Document.
The timing requirement aligns with the
provision of the Disclosure Document
by the live poultry dealer as set forth in
§ 201.102(a) as discussed above.
Although they are not required to do so,
nothing in the rule prevents companies
from providing a translation, provided it
is complete, accurate, and not
misleading.
64 Abby Budimen, ‘‘Hmong in the U.S. Fact
Sheet,’’ Pew Research Center’s Social &
Demographic Trends Project (May 24, 2022),
available at https://www.pewresearch.org/socialtrends/fact-sheet/asian-americans-hmong-in-the-us/ (last accessed April 2023).
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83227
The final rule makes several other
changes to the definitions proposed in
§ 201.2 of the proposed rule. It revises
the definitions of grower variable costs,
growout, and growout period and
changes the latter two terms to poultry
growout and poultry growout period.
The proposed rule would have
defined grower variable costs as ‘‘those
costs related to poultry production that
may be borne by the poultry grower,
including, but not limited to, utilities,
fuel, water, labor, repairs and
maintenance, and liability insurance.’’
Commenters representing the grower
sector shared concern that the definition
would mandate that the costs listed
were the only ones to potentially be
borne by the grower. Commenters
stressed that these costs are often the
subject of negotiation between grower
and live poultry dealer, with some costs
being paid by the live poultry dealer.
Therefore, AMS modified the definition
in § 201.2 of the final rule to replace the
words ‘‘including, but not limited to’’
with the words ‘‘which may include,
but are not limited to.’’ While this does
not substantively change the legal
standard, this modification emphasizes
that these are examples of costs, yet still
retains a definition that allows the listed
costs to be treated as grower variable
costs under a poultry growing
arrangement if the parties choose to
contract for them in some other manner.
AMS also proposed to define growout
as ‘‘the process of raising and caring for
livestock or poultry in anticipation of
slaughter’’ and growout period as ‘‘the
period of time between placement of
livestock or poultry at a grower’s facility
and the harvest or delivery of such
animals for slaughter, during which the
feeding and care of such livestock or
poultry are under the control of the
grower.’’ However, a commenter said
the references to ‘‘livestock or poultry’’
in the proposed definition of growout
period may have unintended
consequences across other segments of
the protein industry that do not use
tournament pay systems, as the
definition of livestock in the Act
includes ‘‘cattle, sheep, swine, horses,
mules, or goats.’’ Therefore, in the final
rule, AMS modified the definitions of
these two terms to remove references to
livestock. In addition, AMS revised
these terms to refer to poultry growout
and poultry growout period to clarify
that it intends these definitions to apply
only in the poultry context for the
purposes of this rule.
AMS also made a few minor changes
for clarification purposes. One change is
found in § 201.104(a), substituting the
word ‘‘these’’ for ‘‘such’’ in reference to
poultry growing ranking system records.
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The change was made to add specificity
for the records that are required to be
maintained by live poultry dealers.
Another change was made in
§ 201.102(b)(8), substituting the word
‘‘statement’’ for ‘‘sentence’’. This is a
clarifying change to both maintain
uniformity in the language used
throughout the regulatory text and to
ensure dealers understand the entire
statement provided by 201.102(b)(8)
must be disclosed to growers.
Table 1 summarizes key differences
between the proposed rule and the final
rule.
TABLE 1—KEY DIFFERENCES BETWEEN THE PROPOSED RULE AND FINAL RULE
Provision
Proposed rule
Changes to final rule
Applicability ..............
All proposed requirements related to disclosures and contract terms are in § 201.100—Disclosures and records to
be furnished poultry growers and sellers (existing section
with proposed revision of heading).
Creates new section § 201.102—Disclosures for broiler
production covering requirements for live poultry dealers
engaged in the production of broilers, while retaining requirements in current § 201.100 for all live poultry dealers.
§ 201.102(a) Changes requirements to apply only to live
poultry dealers engaged in the production of broilers.
Adds wording to emphasize that these requirements apply
in addition to the existing requirements in § 201.100(a)
for live poultry dealers engaged in the production of
broilers.
Retains § 201.100(f).
§ 201.100(a) All live poultry dealers must provide Live
Poultry Dealer Disclosure Document and related documents to prospective or current poultry growers.
Removes § 201.100(f)—Grouping or ranking sheets of existing rule.
§ 201.100(a)(1) When no modifications to housing specifications are contemplated, a live poultry dealer must
provide the poultry growing arrangement and the Disclosure Document at least 7 days before the live poultry
dealer executes the poultry growing arrangement.
§ 201.100(h) Clarifies that the right to discuss the terms of
the poultry growing arrangement offer also applies to
prospective poultry growers and to the accompanying
Disclosure Document.
§ 201.100(i)(2) All live poultry dealers must include minimum annual flock placements and minimum stocking
density in contract.
All provisions related to disclosures upon flock placement
or settlement are in proposed new § 201.214—Transparency in poultry grower ranking pay systems.
§ 201.214(b) All live poultry dealers who use a poultry
grower ranking system to calculate grower payments
must provide certain disclosures upon flock placement.
§ 201.214(c) All live poultry dealers who use a poultry
grower ranking system to calculate grower payments
must provide certain disclosures upon settlement.
§ 201.214(c)(1) Live poultry dealers who use a poultry
grower ranking system to calculate grower payments
must provide the grower a copy of a grouping or ranking
sheet showing the grower’s precise position for that period. This sheet does not need to show the names of
other growers, but must show their housing specification
and the actual figures the grouping or ranking for each
grower in the group during the period is based on.
Terminology throughout rule refers to poultry, poultry growers, poultry growing arrangements, prospective poultry
growers, and live poultry dealers.
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Required Disclosures
Following the
Cover Page
(§ 201.102(c)).
§ 201.100(c)(1) Live poultry dealers must disclose summary of litigation with any poultry grower over the prior 6
years.
§ 201.100(c)(2) Live poultry dealers must disclose summary of bankruptcy filings by dealer and any parent, subsidiary, or related entity over the prior 6 years.
Not in proposed rule .............................................................
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§ 201.102(a)(1) Changes the timing to 14 calendar days,
provided that the grower may waive up to 7 calendar
days of that time period.
Conforming changes made to the prominent disclosures to
be provided the grower and to receipt by growers.
§ 201.102(b)(6)(i), § 201.102(g)(4).
§ 201.100(b) Revises wording to emphasize that the right
for poultry growers or prospective poultry growers to discuss the terms of the poultry growing arrangement offer
applies to the Disclosure Document if that document is
applicable.
§ 201.102(h) Moves requirements to § 201.102 and revises
them to apply only to live poultry dealers engaged in the
production of broilers.
Renumbers section and revises heading to § 201.104—Disclosures for broiler grower ranking system payments.
§ 201.104(b) Changes requirements to apply only to live
poultry dealers engaged in the production of broilers.
§ 201.104(c) Changes requirements to apply only to live
poultry dealers engaged in the production of broilers.
Clarifies that these dealers also must comply with the existing grouping or ranking sheet requirements in retained
§ 201.100 and that disclosures need not show the names
of other growers.
§ 201.104(c)(1) Removes requirements duplicated in retained § 201.100(f), leaving only the requirement for
grouping or ranking sheets to show each grower’s housing specification as applicable exclusively to live poultry
dealers engaged in the production of broilers.
Updates terminology to specifically refer to broilers, broiler
growers, broiler growing arrangements, prospective broiler growers, and live poultry dealers engaged in the production of broilers where necessary to describe which
entities must comply with new requirements.
§ 201.102(c)(1) Live poultry dealers engaged in the production of broilers must disclose summary of litigation with
any broiler grower over the prior 5 years.
§ 201.102(c)(2) Live poultry dealers engaged in the production of broilers must disclose summary of bankruptcy filings by dealer and any parent, subsidiary, or related entity over the prior 5 years.
§ 201.102(c)(4) Adds requirement that live poultry dealers
engaged in the production of broilers must include description of policies, procedures, and appeal rights in
Disclosure Document.
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83229
TABLE 1—KEY DIFFERENCES BETWEEN THE PROPOSED RULE AND FINAL RULE—Continued
Provision
Financial Disclosures
(§ 201.102(d)).
Small Live Poultry
Dealer Financial
Disclosures
(§ 201.102(e)).
Governance and Certification
(§ 201.102(f)).
Receipt by Growers
(§ 201.102(g)).
Proposed rule
Changes to final rule
Not in proposed rule .............................................................
§ 201.102(c)(5) Adds requirement that live poultry dealers
engaged in the production of broilers must include grower turnover rate data in Disclosure Document.
Removed from final rule.
§ 201.100(d)(1) As part of required financial disclosures,
live poultry dealers must provide 1 year of average annual gross payments to growers for all complexes the
dealer owns or operates.
§ 201.100(e) A live poultry dealer, including all parent and
subsidiary companies, slaughtering fewer than 2 million
live pounds of poultry weekly (104 million pounds annually) is exempt from Disclosure Document requirements
if contract does not contemplate revisions to existing
housing specifications that would require poultry grower
to make capital investments.
§ 201.100(f)(1)(i) Live poultry dealer governance framework
must include audits, testing, and review of sample of
Disclosure Documents.
§ 201.100(g)(1) Disclosure Document must include grower
signature page containing specific statement regarding
grower rights related to document.
§ 201.100(g)(2) Live poultry dealers must verify grower receipt by obtaining grower’s dated signature on signature
page of Disclosure Document.
Not in proposed rule .............................................................
Not in proposed rule .............................................................
Not in proposed rule .............................................................
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Terms Defined
(§ 201.2).
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Not in proposed rule .............................................................
Grower variable costs is defined as those costs related to
poultry production that may be borne by the poultry
grower, including, but not limited to, utilities, fuel, water,
labor, repairs and maintenance, and liability insurance.
Growout is defined as the process of raising and caring for
livestock or poultry in anticipation of slaughter.
Growout period is defined as the period of time between
placement of livestock or poultry at a grower’s facility
and the harvest or delivery of such animals for slaughter,
during which the feeding and care of such livestock or
poultry are under the control of the grower.
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§ 201.102(d)(1) Revises paragraph to specify that live poultry dealers engaged in the production of broilers must
only calculate average annual gross payments for growers at the local complex distributed by quintiles for complexes with 10 or more growers, and for complexes with
nine or fewer growers, must calculate the mean payment
and one standard deviation from the mean.
§ 201.102(e) Revises provision to provide that exemption
applies for live poultry dealers engaged in the production
of broilers if the dealer together with all companies controlled by or under common control with the dealer
slaughters fewer than 2 million live pounds of broilers
weekly (104 million pounds annually).
Removed from final rule.
§ 201.100(g)(1) Adds language to statement regarding
grower rights to state that growers may report potential
violations to USDA and DOJ portal at https://
www.farmerfairness.gov. or by phone at 1–833–DIAL–
PSD (1–833–342–3773) and obtain further information
on rights and responsibilities under the Act at
www.ams.usda.gov.
§ 201.102(g)(2) Adds provision allowing live poultry dealers
engaged in the production of broilers to obtain alternative
documentation to evidence delivery and that best efforts
were used to obtain grower receipt.
§ 201.102(g)(3) Adds requirements for live poultry dealers
engaged in the production of broilers to ensure that the
Disclosure Document is written in clear, concise, and understandable manner for growers.
§ 201.102(g)(4) Adds requirement that the dealer must
make reasonable efforts to ensure that growers are
aware of their right to request translation assistance, and
to assist the grower in obtaining a translation or understanding the Disclosure Document at least 14 calendar
days before executing a growing arrangement that does
not contemplate modifications to the existing housing
specifications (provided that the grower may waive up to
7 calendar days of that time period). Where modifications to the existing housing specifications are contemplated, it must be provided when the live poultry
dealer provides the grower with the Disclosure Document.
Adds definitions for broiler, broiler grower, broiler growing
arrangement, and prospective broiler grower.
Adds definition for gross payments.
Revises definition to refer to costs ‘‘which may include, but
are not limited to’’ the listed costs rather than ‘‘including,
but not limited to,’’ these costs.
Revises definition to refer to term as poultry growout and
exclude livestock.
Revises definition to refer to term as poultry growout period
and exclude livestock.
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VII. Comment Analysis
AMS received 504 comments on the
proposed rule, some with multiple
signatories. Comments received were
generally more supportive of the
proposed rule than opposed. Many
commenters generally agreed with the
proposed rule’s justification and
implementation. These commenters
stated that the proposed rule would be
helpful because it would provide for
fairer treatment of growers and enable
growers to better understand, evaluate,
and compare contracts among dealers,
enhancing growers’ ability to bargain
efficiently. Commenters stated further
that the proposed rule would reduce the
power of large corporations in the
industry, improve public trust in
agriculture, and increase transparency
regarding food products.
Other commenters were generally
critical of the proposed rule. These
commenters expressed general
disagreement with AMS proposing a
rule at all, arguing the current system is
fair and efficient and that the
tournament system rewards growers for
efficiency, innovation, and raising the
best birds possible. Several commenters
stated the proposed rule is not fair and
would result in a less efficient industry
because it would reward less productive
growers, disincentivize hard work, and
add more paperwork.
The public comments are summarized
by topic below and include AMS’s
responses.
A. Proposed Definitions
AMS proposed to revise § 201.2
containing relevant definitions by
removing the paragraph designations
within the section, reorganizing the
definitions alphabetically, and adding
definitions for new terms used in the
proposed rule. In addition, to ensure a
common understanding of the use and
meaning of certain terms already used
in the regulations and included in the
revisions, AMS proposed to incorporate
the statutory definitions for those terms.
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Grower Variable Costs
AMS proposed defining grower
variable costs as ‘‘those costs related to
poultry production that may be borne by
the poultry grower, including, but not
limited to, utilities, fuel, water, labor,
repairs and maintenance, and liability
insurance.’’ 65
Comment: Some commenters shared
concern that the definition of grower
65 Liability insurance may be a fixed cost for
many growers, but we include it here because that
may not be so in all circumstances, while the
purpose of this rule is to provide enhanced
information to all growers.
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variable costs creates the impression
that it is a regulatory requirement or
expectation that the costs listed therein
are to be borne by the grower, thereby
harming growers’ ability to negotiate
those terms. Commenters stressed that
these costs are sometimes the subject of
negotiation between grower and live
poultry dealer, with some costs being
paid by the live poultry dealer.
AMS response: AMS modified the
definition of grower variable costs to
replace the words ‘‘including, but not
limited to’’ with the words ‘‘which may
include, but are not limited to.’’ The
modification in the definition, in
particular the use of the term ‘‘may,’’
underscores that the requirement to
provide transparency for any grower
costs, including those listed in the
definition, do not create a mandate
upon the live poultry dealer or grower
with respect to who bears any of the
specific listed costs. In many, if not
most contracts today, based on AMS’s
experience, the listed examples would
be considered grower variable costs.66
But the rule does not prevent the parties
from negotiating other arrangements,
such as the live poultry dealer accepting
responsibility for the payment of those
cost items. This approach is consistent
with the rule’s general approach of
enhancing transparency.
AMS considered whether to remove
the list of potential variable costs, as
requested by the commenter. AMS
rejected that approach because it poses
a risk of complexity or confusion in
compliance, as live poultry dealers may
not know which types of grower
variable costs are generally required to
be disclosed under most contracts
today. AMS notes that the listing of any
particular grower variable cost does not
prevent the parties from contracting for
other arrangements regarding who bears
the burden of any particular grower
variable costs.
Growout and Growout Period
AMS proposed to define growout as
the process of raising and caring for
livestock or poultry in anticipation of
slaughter and growout period as the
66 See Jennifer Rhodes, Extension Educator, et al,
University of Maryland, ‘‘Broiler Product
Management for Potential and Existing Grower,’’
Tables 1 and 2, available at Poultry Budgets,
Enterprise Budgets, Agricultural and Resource
Economics, North Carolina State University
Extension, https://cals.ncsu.edu/are-extension/
business-planning-and-operations/enterprisebudgets/poultry-budgets/ (last accessed April 2023).
Also see Dan L. Cunningham and Brian D.
Fairchild, University of Georgia Cooperative
Extension, ‘‘Broiler Production Systems in Georgia
Costs and Returns Analysis 2011–2012,’’ Bulletin
1240, and Tomislav Vukina, ‘‘Vertical Integration
and Contracting in the Poultry Sector,’’ Journal of
Food Distribution Research (July 2001).
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Frm 00022
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period of time between placement of
livestock or poultry at a grower’s facility
and the harvest or delivery of such
animals for slaughter, during which the
feeding and care of such livestock or
poultry are under the control of the
grower.
Comment: A meat and poultry
industry trade association made up of
processors commented that the
references to ‘‘livestock or poultry’’ in
the proposed definition of growout
period may have unintended
consequences across other segments of
the protein industry that do not use
tournament pay systems, as the
definition of livestock in the Act
includes ‘‘cattle, sheep, swine, horses,
mules, or goats.’’ The commenter stated
that it is not aware of uses of the
tournament system in the production of
these species and AMS has not provided
any facts to suggest that those species
have a growout period as the term
would be employed in the poultry
industry. The commenter recommended
AMS revise this definition to eliminate
‘‘livestock’’ and review all definitions to
avoid unintended consequences for
other protein segments.
AMS response: This final rule
modifies the proposed definitions for
growout period and growout to apply
only to poultry. The references to
livestock in the proposed definitions
were offered to provide a more generally
applicable definition but are not needed
at this time and are therefore removed.
To improve clarity, we also changed the
proposed terms growout and growout
period in § 201.2 to instead refer to
poultry growout and poultry growout
period, respectively.
Housing Specifications
AMS proposed to define housing
specifications as a description of—or a
document relating to—a list of
equipment, products, systems, and other
technical poultry housing components
required by a live poultry dealer for the
production of live poultry.
Comment: A poultry industry trade
association commented that the
proposed definition of housing
specifications is unnecessarily vague
and lends itself to multiple
interpretations. The commenter said
there are endless combinations of
equipment, products, systems, and other
technical poultry housing components
that could result in dealers having to
organize dozens of housing
specifications, adding significant
complexity for the dealer, and creating
confusion for the grower. The
commenter stated that because farms are
built with the technology in use at the
time, the housing types and technology
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in use generally correlate with the age
of the facility.
To simplify the categorization of
housing specifications in Disclosure
Documents and settlement sheets, the
commenter recommended that AMS
revise the definition to clarify that live
poultry dealers are permitted to devise
their own categories of housing
specification for the purposes of the
Disclosure Documents and settlement
sheets, which will allow dealers to
prepare and present data based on the
types of housing that their growers use
to raise birds for them. The commenter
noted, at the least, AMS should revise
the definition to narrow the housing
specification to key elements of
housing, namely, the type of ventilation
(for example, curtain or tunnel
ventilation) and whether the house is a
brood and growout house or only
accommodates the growout stage.
AMS response: AMS does not agree
and will not revise the proposed
definition of housing specifications in
response to this comment. The
definition does not limit dealers’ ability
to categorize poultry housing. Dealers
are free to list the minimum or required
equipment or technical specifications
that would qualify under a given
housing specification category.
Poultry Grower Ranking System
AMS proposed to define poultry
grower ranking system as a system
where the contract between the live
poultry dealer and the poultry grower
provides for payment to the poultry
grower based upon a grouping, ranking,
or comparison of poultry growers
delivering poultry during a specified
period.
Comment: Several commenters argued
that the proposed definition of poultry
grower ranking system lacks sufficient
flexibility. These commenters stated
that the regulations appear to
contemplate only two contract types—
flat payment or a tournament system—
and do not encompass the many forms
of contracting in use in today’s market,
let alone innovative contracting
arrangements.
Comments recommended that AMS
revise the definition to exclude from the
scope of the proposed rule poultry
grower compensation systems where
there is a fixed base pay, regardless of
how any incentive-based bonus may be
calculated. They recommended revising
the definition of poultry grower ranking
system to mean ‘‘a system where the
contract between the live poultry dealer
and the poultry grower provides for base
payment to the poultry grower based
upon a grouping, ranking, or
comparison of poultry growers
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delivering poultry during a specified
period.’’
AMS response: AMS has fully
considered the applicability of ‘‘poultry
grower ranking system’’ to a wide range
of possible compensation systems and
intends for the relevant provisions of
this rule governing comparisons to be
applied broadly. AMS recognizes that
certain designs of grower comparisons
may provide more desirable outcomes
for contracting participants in different
circumstances, and in issuing this final
rule, AMS is creating transparency in
payment systems. However,
commenters’ recommendation would
limit the disclosures of this rule only to
those instances of variable base pay,
even when comparison rankings affect
performance pay in a manner that,
under current conditions, is opaque and
misleading to the grower. Addressing
this widespread deceptive practice is
squarely the purpose of this final rule.
The definition was developed to be
consistent with the approach set forth in
current § 201.100(f)—Growing or
ranking sheets, that has been in place
since 1989,67 and provides transparency
to growers who are paid based on the
live poultry dealer’s grouping or ranking
of poultry growers delivering poultry
during a specified period.
AMS does not agree that it is
necessary or appropriate to distinguish
between types of ranking systems for the
purposes of this rule. Commentors
asserted that fix-based pay systems that
included bonuses for better rankings are
distinguishable from systems that have
a variable base pay established by the
grower’s ranking. Their proposal would
limit the disclosures of this rule to those
instances of variable base pay, even
when there are other comparison
rankings. In AMS’s view, any
comparison of growers is a ranking
system because when growers are
compared to each other, the basis for
grower payment is changed. No longer
is payment based only upon the
intrinsic work of one particular grower.
Instead, payment is based upon a
relative outcome between growers,
where similarities or differences
between them become especially
important. For example, under any
system of grower ranking, comparative
information about inputs may
illuminate and magnify differences
where those differences can impact
performance and payment.
In particular, AMS rejects the
suggested limitation of grower ranking
systems either to the calculation of basepay-plus-incentive payment or entirely
to base pay. In either circumstance,
67 54
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growers are exposed to comparisons in
the context of performance payments,
which could make up a sizable, if not
an overwhelming, portion of their
compensation and be subject to
significant variability for reasons
outside of their control or awareness.
Regardless of what type of ranking
system is used, growers are entitled to
know the reasons behind payment
differences that may relate to inputs or
other important differences affecting the
outcome because that information is
necessary to avoid deception for the
reasons described throughout this final
rule.
AMS recognizes that payment systems
may evolve and that parties may wish
to innovate in payment systems to the
extent those systems are transparent and
free of potential deception.
Transparency is fully compatible with
such innovation because it encourages a
responsible, accountable form of that
innovation. The rule’s required
disclosures regarding input differences
provide growers with the information
they need to be able to adjust to any
input differences that may exist,
including in advance of input delivery
and over time when comparing
outcomes of a series of growouts.
Accordingly, AMS is not changing the
definition of poultry grower ranking
system as proposed based on these
comments. Poultry companies and
growers should contact AMS to discuss
questions about compensation systems.
AMS provides an estimate of the
value of improved transparency in the
regulatory analysis section.
Other Comments on Definitions
Comment: Several non-profit
organizations suggested AMS add
several new definitions to § 201.2. First,
the commenters noted that the proposed
rule, as well as current regulations
under the Act, appear to use the term
‘‘facility’’ to refer to a poultry grower’s
poultry houses collectively, rather than
individually. Therefore, they
recommended that AMS add a
definition for poultry house to allow for
clarity in circumstances where it needs
to refer to individual poultry houses.
Second, the commenters noted that the
proposed rule uses the term
‘‘tournament system’’ in a manner that
appears to be synonymous with
‘‘poultry grower ranking system.’’
Therefore, they recommended that AMS
define tournament system to be
synonymous with poultry grower
ranking system.
AMS response: This rule applies at
the farm level and therefore does not
require specification of a separate term
to refer to an individual poultry house
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beyond that already provided by
housing specification. In addition, the
term ‘‘tournament system’’ does not
appear in the rule text itself. Therefore,
AMS made no changes to the definition
of poultry grower ranking system in the
final rule.
B. Applicability
AMS proposed to revise § 201.100(a)
to require a live poultry dealer to
provide certain documents to a
prospective poultry grower when the
live poultry dealer seeks to establish a
poultry growing arrangement, or to a
current poultry grower when a live
poultry dealer seeks to modify an
existing poultry growing arrangement.
AMS proposed to apply this Disclosure
Document requirement to live poultry
dealers in all segments of the poultry
production industry. Poultry is defined
in section 182(6) of the Act to include
chickens, turkeys, ducks, geese, and
other domestic fowl. AMS requested
comments on whether the disclosure
requirements should apply to all
segments of the poultry production
industry, or if the requirements should
be limited to broiler and turkey
production.
Comment: Comments received stated
that the disclosure requirements should
only apply to contractual agreements
within the tournament system of
growing poultry and noted the
disclosures are largely meant for the
broiler industry, where many of the
complaints arise.
An association representing the
turkey industry noted the provisions of
the proposed rule were not based on
substantial research into the turkey
industry and asserted many of the
provisions would be difficult or
impossible for turkey companies to
implement, citing differences in turkey
growing cycles, flock densities, bird
gender distributions, and other factors
dissimilar to those involved in broiler
production.
AMS response: As discussed
previously, AMS subject matter experts
analyzed turkey production contracts
from across the country and found more
variability than in broiler contracts. The
variability reflects the biological
differences found among turkey breeds
and longer placement times of turkeys
with growers that can impact payments
to producers. AMS has not received
many complaints from turkey growers.
Similarly, other (non-broiler chicken)
poultry growers have not expressed
concerns regarding practices in their
industry. AMS determined it is
appropriate at this time to limit the
scope of the disclosure requirements in
this rule to apply only to broiler
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production under a poultry growing
arrangement.
This final rule contains a new section
§ 201.102 containing these disclosure
provisions and specifying that they
apply exclusively to live poultry dealers
engaged in the production of broilers,
while maintaining the current
requirements at § 201.100, which
continue to apply to all live poultry
dealers. This rule also makes
conforming changes to § 201.2 to define
broiler as ‘‘any chicken raised for meat
production,’’ broiler grower as ‘‘a
poultry grower engaged in the
production of broilers,’’ broiler growing
arrangement as ‘‘a poultry growing
arrangement pertaining to the
production of broilers,’’ and prospective
poultry grower as ‘‘a person or entity
with whom the live poultry dealer is
considering entering into a broiler
growing arrangement.’’ This final rule
further clarifies that the right of current
or prospective poultry growers to
discuss the terms of a poultry growing
arrangement offer applies to the
Disclosure Document in circumstances
that require dealers to provide this
document. All poultry growers are
protected by the Act’s prohibitions on
deceptive practices, and AMS has the
authority to address instances or
circumstances where poultry growers
are not provided sufficient information
to make informed decisions on poultry
growing arrangements or changes
thereto, including additional capital
investments.
Because this final rule limits all the
new disclosure requirements to broiler
production, this rule modifies the
proposed requirement for live poultry
dealers to include in their contracts the
minimum number of flock placements
to be delivered to growers annually and
the minimum stocking density of those
placements, applying it exclusively to
live poultry dealers engaged in the
production of broilers. This final rule
also changes the proposed requirement
in § 201.214 to apply exclusively to live
poultry dealers engaged in the
production of broilers who use a poultry
grower ranking system to calculate
grower payments. AMS retains the
current grouping or ranking sheet
requirements for all live poultry dealers
in § 201.100(f) of the current rule.
Comment: Several commenters said
the rule should apply to pullet and
breeder hen growers as well as broiler
growers because pullet and breeder hen
production is also controlled by live
poultry dealers.
AMS response: Although live poultry
dealers may control pullet and breeder
hen production, those birds are
typically raised for egg and chick
PO 00000
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production and not for slaughter
purposes. The Act’s poultry provisions
cover only poultry raised for slaughter.
Because there is no provision for doing
so under the Act, AMS is not making
this rule applicable to pullet and
breeder hen production.
C. Disclosure Document and Letter of
Intent
AMS proposed to amend § 201.100 to
revise the list of disclosures and
information live poultry dealers must
provide to poultry growers and sellers
with whom dealers make poultry
growing arrangements. Currently, when
a live poultry dealer offers an
arrangement with a poultry grower, the
dealer must furnish a true written copy
of the growing arrangement. In the
proposed rule, AMS proposed to require
a live poultry dealer who seeks to
establish a new growing arrangement;
renew, revise, or replace an existing
arrangement; or enter an arrangement
with a poultry grower or prospective
poultry grower that will require original
capital investment to also provide a
Disclosure Document that contains
specific information. When the
arrangement requires an original capital
investment or modifications to existing
housing specifications that could
require the poultry grower to make an
additional capital investment, AMS
proposed to require the dealer to
provide a letter of intent that can be
relied upon by the grower to obtain
additional capital investment.
Utility of Information Provided
Comment: AMS asked whether the
information in the proposed rule’s
required disclosures would help poultry
growers make informed business
decisions and better understand poultry
growing arrangements, or otherwise
better address deceptive practices faced
by poultry growers. Most commenters
supported requiring the Disclosure
Document information as proposed,
saying the information will help poultry
growers make more informed business
decisions and reduce risks of deception.
However, some commenters said the
rule will be costly and will confuse
poultry growers. These commenters
stated that relevant information is
already provided to growers and the
additional proposed disclosures would
not be helpful.
AMS response: AMS does not agree
with the comments received in
opposition to the proposed information
disclosures. Requirements for disclosing
information to broilers are not new to
live poultry dealers. The current
regulations at § 201.100 already require
disclosures from live poultry dealers.
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This final rule expands the information
that live poultry dealers are required to
provide to boiler growers. AMS’s
experience in reviewing live poultry
dealers’ records suggest that live poultry
dealers already keep records of most of
the information that the final rule would
require them to disclose. Although the
final rule does impose additional costs
on live poultry dealers, the additional
costs associated with the disclosures
consist primarily of assembling the
information and distributing it to
growers. AMS expects that the
additional costs that live poultry dealers
would face will amount to $2.43 million
in the first year and $6.04 million over
ten years.
AMS expects that the benefits or
utility of the information disclosed to
broiler growers will outweigh the costs
of producing and distributing the
information. AMS estimated the benefits
to broiler growers from reduced revenue
uncertainty to be $2.7 million in the
first year and $26.9 million over ten
years. Comments received from growers
indicated that with additional
information, they might have made
different business decisions with regard
to poultry growing arrangements.68
Further, the information provided in the
disclosures should not confuse those
currently in the business of growing
broilers, provided it is explained in
clear language. Prospective broiler
growers are expected to benefit from the
disclosed information as they more fully
appreciate and consider aspects of the
business that need their careful
attention. Accordingly, AMS made no
changes to the rule as proposed based
on these comments.
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Partial Exemption for Small Dealers
In proposed § 201.100(e)—Small live
poultry dealer financial disclosures—
AMS proposed to exempt live poultry
dealers who, in conjunction with any
parent and subsidiary companies,
slaughter fewer than 2 million live
pounds of poultry weekly (104 million
pounds annually) from the requirement
to provide the Disclosure Document
under proposed § 201.100(a)(1). As
proposed, the exemption would apply
only if the new, renewed, or
replacement contract offered by one of
68 Comments on Proposed Rule: Transparency in
Poultry Grower Contracting and Tournaments,
(Aug. 2022), https://www.regulations.gov/comment/
AMS-FTPP-21-0044-0479 (See, for instance,
Background section in this rulemaking, which cites
comments from numerous growers about how they
lacked important information to make informed
growing decisions and about how. required
disclosure of such information would greatly
benefit them. Moreover, integrators typically
already collect such information for their own use
without disclosing it to growers.).
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these dealers does not include revisions
to existing housing specifications that
would require the grower to make new
or additional capital investments. AMS
requested comments on the proposed
partial exemption, including whether
AMS should consider other approaches,
such as different thresholds, for
applying the small live poultry dealer
partial exemption.
Comment: Some commenters said
they opposed the proposed rule’s partial
exemption from the disclosure
requirements for live poultry dealers
that slaughter fewer than 2 million live
pounds of poultry weekly because it
would exempt almost half of the live
poultry dealer industry from these
requirements, arguing that growers and
flocks involved with small dealers could
suffer the same disadvantages as others
in the industry without receiving the
benefits of the rule. These commenters
noted that, according to AMS’s analysis,
the exemption would apply to 47 out of
89 live poultry dealers.
AMS response: The total production
volume exempted, rather than the
number of live poultry dealers, provides
a better picture of the extent to which
portions of the industry will be affected
by the exemption. The exemption
pertains to only 0.20% of total broiler
production volume and 2.0% of total
broiler contracts, as calculated for
broiler firms filing an annual report
with PSD in 2021.69 In § 201.102(e) of
the final rule, AMS maintains the partial
exemption for small live poultry dealers
but revises the language originally
proposed to clarify that the partial
exemption applies to a live poultry
dealer engaged in the production of
broilers that, together with all
companies controlled by or under
common control with the live poultry
dealer, slaughters fewer than 2 million
live pounds of broilers weekly (104
million pounds annually).
Comment: A meat industry trade
association said the partial exemption
for small live poultry dealers would
result in a non-level playing field based
on a live poultry dealer’s size. A poultry
industry trade association asserted if the
need for the rule is valid, then no live
poultry dealer should be exempt. This
commenter expressed concern that the
exemption could result in poultry
growers leaving larger live poultry
dealers that comply with the rule to join
smaller live poultry dealers that do not
need to comply. One commenter
69 All live poultry dealers are required to annually
file PSD form 3002 ‘‘Annual Report of Live Poultry
Dealers,’’ OMB control number 0581–0308. The
annual report form is available to the public at
https://www.ams.usda.gov/sites/default/files/
media/PSP3002.pdf.
PO 00000
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83233
representing the turkey sector indicated
it had no objection to this provision.
One poultry grower commenter said
small live poultry dealers should not be
exempt, but that there should be a
revenue threshold tailored to small
dealers because of the expense of
recordkeeping.
AMS response: In the spirit of the
Regulatory Flexibility Act, AMS is
attempting to fit regulatory and
informational requirements to the scale
of the businesses, organizations, and
governmental jurisdictions subject to
regulation.’’ AMS intends for the
exemption to reflect the fact that
deceptive practices are less likely to be
observed among smaller live poultry
dealer operations in AMS experience.
The exemption is also expected to ease
the regulatory compliance burden on
live poultry dealers with lower
production volume, as described in the
previous comment response. Based on
AMS’s experience, smaller operators
tend not to compete directly with the
larger live poultry dealers, often have
smaller grower pools, generally dictate
less complicated or expensive housing
requirements, and use different business
models.70 These smaller dealers tend to
fall into two types. In the first type,
these smaller operators rely on growers
whose facilities have been used in
production for many years and who are
not usually required to make changes.
The growout services they require of
their growers are commonly more
intermittent. In the other type,
specialized operators—often start-ups or
companies that focus on certain highend products—serve discrete markets
where dealers often have higher profit
margins, which reduces the need for
ongoing grower financial investment on
the part of growers to achieve greater
efficiency, and as a result rely less on
certain poultry growout arrangements
that have been associated with the types
of deception addressed by this rule.
Neither commonly employs contracts or
practices that require growers to invest
in particularized housing
specifications—a key reason why the
small operator exemption does not
include those who do. Also, neither
tends to deploy the degree of dealer
discretion in the provision of inputs or
other operational matters common to
larger, more commoditized operations.
70 For example, a small organic chicken company
started in Virginia using old growout houses that
were no longer suitable for use in larger operations.
See Andrew Jenner, ‘‘In Virginia, an organic
chicken empire is growing—using old barns big
poultry companies left empty,’’ The Counter,
(March 9, 2020) available at https://thecounter.org/
organic-chicken-contract-farming-shenandoahvalley/ (last accessed April 2023).
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These simpler, more straightforward
growing arrangements have less grower
payment variability and fewer financial
and other risks relating to dealer
discretion in the operation of the
poultry growing arrangement. As a
result of the differences in these
markets, growers for these smaller live
poultry dealers tend to face reduced risk
of deception. Current market realities
would not, at present, seem to justify
the effort and expense to develop the
Disclosure Document required of larger
business entities.
To ensure that this smaller business
exception captures only the two types of
smaller live poultry dealers discussed
above, this rule only exempts smaller
live poultry dealers from disclosure
where no capital investments are
contemplated. Based on AMS’s
experience, the need for original or
additional capital investment on the
part of the grower suggests the presence
of the more intensive performancebased economic pressure from the live
poultry dealer on the grower, which in
turn characterizes a market where the
dealer will exert greater discretion in
the operation of the contract and where
grower outcomes are more variable due
to factors outside of their control and
knowledge. The presence of capital
investments also raise the risks to
growers from any deception that may
arise by subjecting growers to debt
burdens and making it more difficult for
them to change poultry-processing
companies. Under the regulation,
smaller live poultry dealers face the
same disclosure obligations as larger
ones when dealing with a new poultry
growing arrangement that will require
an original capital investment or
modifications to existing housing
specifications that would reasonably
require an additional capital
investment.
AMS rejects the argument that the
exemption could result in poultry
growers leaving larger live poultry
dealers that comply with the rule to join
smaller live poultry dealers that do not
need to comply. The commenter does
not provide evidence that this would
occur in markets that, in AMS’s
experience, are structured differently
and respond to different incentives. To
the extent it did occur in one or more
places, some dealers may also grow to
become covered by the rule. Regardless,
AMS will remain attentive to potential
instances of deceptive practices across
the poultry industry.
Changes to Requirements
Comment: In the proposed rule, AMS
asked what items might be added to or
deleted from the Disclosure Document.
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Several industry commenters said AMS
should not require disclosures for any
item that would be included in the
poultry grower contract arrangement, as
providing information about these items
in the Disclosure Document as well
would be an unnecessary burden. A
commenter noted the live poultry
dealer’s name, type of business,
organization, principal business
address, telephone number, primary
internet website address, and the length
of the term of the arrangement are
already provided in dealer contracts.
Several non-profit organizations said
AMS should require disclosure of all
possible variables that could affect a
contract grower’s settlement pay, along
with whether and how the tournament
ranking formula compensates for such
variables. These commenters also said
AMS should require additional
disclosures for live poultry dealers
proposing or requiring modification to
existing infrastructure. A farm bureau
commenter said AMS should add
language preventing live poultry dealers
from requiring name-brand equipment
for an equipment mandate when poultry
housing is modified, unless the live
poultry dealer can demonstrate the
mandate is scientifically justified.
AMS response: Together, the
Disclosure Document and production
agreement will ensure growers are better
informed of their obligations and risks.
The Disclosure Document refers to and
highlights information also contained in
the production agreement to emphasize
selected important information
contained there. Requiring name and
contact information assures the grower
the Disclosure Documents pertain to the
poultry growing arrangement in
question, highlights points of contact
and their contact information, and
underscores certain basic information in
the contract, such as its length of term.
Providing such information, which is
readily available to the live poultry
dealer and already included in the
contract itself, is not an overly
burdensome requirement.
AMS recognizes that the Disclosure
Document cannot list all potential
variables in poultry production nor
properly assess the industry burden of
disclosing how the tournament formula
compensates for each of those variables.
However, AMS has targeted the
requirements to disclosure of variables
most frequently cited by industry
commenters and what the agency
understands to be most useful to
growers to assess their risks, in the
context of the dependent nature of their
contractual relationship with live
poultry dealers. This includes
disclosures at tournament settlement of
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information regarding inputs and
housing specifications to enable growers
to assess the relationship between
inputs and housing specifications. AMS
intends to monitor the market and may
examine in the future whether any
additional information may be useful to
help growers understand what factors
affect tournament outcomes, whether
located in the Disclosure Document or
in settlement disclosures.
This final rule does not require
additional disclosures beyond the
requirements of the Disclosure
Document for live poultry dealers
proposing or requiring modification to
existing infrastructure. Nor are we
addressing whether requiring name
brand equipment without scientific
justification is permissible or not, as
that would fall outside the scope of this
transparency rule. However, AMS is
sensitive to grower concerns in these
areas and notes that equipment
limitations are subject to review under
additional capital investment criteria in
current § 201.216. Additionally, AMS is
considering future rulemaking to
address capital improvement programs
in poultry growing contracts, as
explored in the Advanced Notice of
Proposed Rulemaking ‘‘Poultry Growing
Tournament Systems: Fairness and
Related Concerns.’’ (See 87 FR 34814;
June 8, 2022.) Accordingly, AMS is
making no changes to this transparency
rule as proposed based on these
comments.
In related comments, grower groups
expressed a desire for a disclosure that
communicates information about the
rate of grower turnover, or grower
churn, for live poultry dealers. AMS
agrees that knowing the dealer’s recent
history with respect to grower churn
would give current and prospective
growers a decision-useful data point
with which to evaluate the stability of
the live poultry dealer’s grower roster,
which may serve as an imperfect but
adequate proxy for grower satisfaction.
Some dealers may be prone to engage in
practices that growers broadly dislike,
creating dissension between growers
and dealers, and often resulting in
contract termination and/or litigation
between the parties, which is reflected
in the turnover rate. Accordingly, in
response to comments on the proposed
rule, we modified the proposal by
adding the requirement in
§ 201.102(c)(5) of the final rule that
dealers must disclose average annual
broiler grower turnover rates for the
previous calendar year and the 5
previous calendar years at a company
level and a local complex level.
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Comment: In the proposed rule, AMS
asked what burdens or challenges
dealers could face in collecting and
disseminating information to include in
the Disclosure Document and whether
these burdens would require dealers to
modify their business model. Multiple
poultry industry commenters said live
poultry dealers would need to develop
new recordkeeping systems, hire
additional employees, and implement
archival systems to maintain the
required records under the rule, leading
to increased administrative costs.
Commenters argued these burdens will
make the U.S. poultry industry less
competitive in the global marketplace.
An academic institution said large
poultry companies may choose to
increase prices for consumers to recoup
administrative costs associated with the
rule but noted the large poultry
companies have benefited from their
market power and have been making
record profits despite global
disruptions.
AMS response: AMS does not agree
that the recordkeeping required will
lead to meaningfully increased
administrative costs. Further, AMS does
not expect any cost increases from the
rule, including recordkeeping costs, to
impact consumer chicken prices
because the increases in costs are
immeasurably small compared to
industry revenues. AMS notes in the
Regulatory Impact Analysis that
Chicken sales in the U.S. for 2019 were
approximately $58.6 billion and that the
total quantified cost of §§ 201.102 and
201.104, including recordkeeping costs
is estimated at $3.4 million when it is
greatest in the first year, or 0.0006
percent of revenues.
In USDA’s extensive experience with
live poultry dealer business practices
indicates most of this information is
already routinely collected by live
poultry dealers. The information
contained in the Disclosure Document is
designed to aid poultry growers in
making business decisions by allowing
growers to better understand, evaluate,
and compare contracts. Information
relating to performance and payments of
all growers at a particular complex is
useful to growers in reducing deceptive
practices and allows growers to make
more informed business decisions.
Timeline To Provide Disclosure
Document
Comment: AMS proposed in
§ 201.100(a)(1) to require live poultry
dealers to provide the Disclosure
Document to current or prospective
poultry growers at least 7 calendar days
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before executing a poultry growing
arrangement in several circumstances.
These disclosure requirements apply
when the live poultry dealer seeks to
renew, revise, or replace an existing
arrangement or to establish a new
arrangement that does not contemplate
modifications to the existing housing
specifications. Several commenters
advocated for lengthening this timeline.
These commenters said the 7-day
timeline does not give growers enough
time to review the contract and consult
as needed with relevant entities. One of
these commenters suggested AMS
implement a 14-day timeline, while
another suggested a 30-day timeline.
AMS response: AMS underscores the
importance of giving growers the
opportunity to meaningfully review and
understand the disclosures, as that is an
essential part of achieving the purposes
of the rule to reduce deception and
empower growers to make effective
decisions. At the same time, we
recognize the importance to both
growers and dealers of keeping existing
poultry houses in production. The timebased requirement of § 201.102(a)(1)
only applies when capital investment is
not contemplated; other situations
where required investment would
expose growers to new risks have
different requirements due to the
necessary lending and investment
process and those timelines (which
commonly occur over several months
and are more controlled by the grower’s
decisions around any lending and
construction). In most cases, growers
considering a new, renewed, revised, or
replacement poultry growing
arrangement that does not contemplate
modifications to existing poultry
housing already have a relationship
with the live poultry dealer and know
whether or not they wish to continue
that relationship.
AMS agrees with the comments from
the grower and advocacy sectors that
said at least 14 calendar days in advance
of the broiler growing arrangement’s
execution would provide a more
appropriate length of time for some
growers to adequately review and act
upon the information provided in the
documents. At the same time, AMS
recognizes that growers in some
circumstances may be under pressure by
dealers to execute a contract without
fully considering its contents and
implications. For instance, AMS is
aware that some dealers currently
provide only 3 business days for
growers to review a contract.
Furthermore, where a grower may be
switching dealers without a capital
investment, dialogue can be expected to
be ongoing. In addition, sec. 208 of the
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83235
Act gives poultry growers 3 business
days after a poultry growing
arrangement is executed to cancel the
arrangement.
AMS also recognizes that broiler
growers have an interest in continuity of
production, and does not wish to
inadvertently insert unnecessary time
delays into the grower’s planning
process during contracting, in particular
as this provision exclusively addresses
the circumstance where the grower is
not contemplating modifications to the
housing specification of the grow house.
Lengthy waiting periods as suggested by
some commenters may result in delayed
placements and idle farms, and may
also expose both dealers and growers to
other financial risks relating to changing
economic circumstances.
The final rule seeks to maximize the
grower’s ability to determine the length
of time necessary to review the
documents. It provides a of full 14
calendar days of notice unless the
grower elects to waive 7 calendar days
of the period. It also retains the 7calendar-day minimum review period to
mitigate the potential for coercive
behavior. Growers expressed that they
need more time to review the
disclosure, which is a valid concern in
some situations, but we are concerned
that the additional time might prevent
other growers from receiving timely
placements in other situations, while
the default is now a 14-day period for
disclosure, we are allowing growers to
elect to reduce that period to 7 calendar
days for their convenience. Because we
think live poultry dealers may apply
undue pressure if the rule permitted a
period of less than 7 calendar days,
AMS is not permitting growers to waive
notice entirely. Accordingly, this final
rule revises § 201.102(a)(1) to require
that live poultry dealers provide
growers with the required documents at
least 14 calendar days before the live
poultry dealer executes the broiler
growing arrangement, provided that the
grower may waive up to 7 calendar days
of that time period.
Comment: A poultry industry trade
association said AMS should require
live poultry dealers to furnish the
Disclosure Document at the initial
signing of a poultry growing
arrangement, and then on a periodic
basis, such as every year.
AMS response: AMS designed the
proposed rule to specifically prevent
deception at the time of contracting and
thus intends for disclosure information
to be tied to the production contract.
That is, a new disclosure is required
whenever production contracts change,
without regard to how much time has
passed since any prior disclosures. This
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Federal Register / Vol. 88, No. 227 / Tuesday, November 28, 2023 / Rules and Regulations
gives the grower a chance to evaluate
dealer disclosures in connection with
the new, renewed, or revised contract
before taking action on it. Requiring
dealers to provide the Disclosure
Document on a periodic schedule,
regardless of whether changes are made
to an existing contract, would be
unnecessarily burdensome to dealers.
Therefore, in the final rule, AMS
maintains the requirement for live
poultry dealers to furnish the Disclosure
Document whenever production
contracts change rather than on a
periodic basis.
Comment: A poultry industry trade
association said AMS should provide
additional clarity on how, and in what
timeframe, live poultry dealers should
communicate changes in disclosure
information to growers. For example,
this commenter asked whether a change
to the placement or stocking density
resulting from disease, weather, or
changed economic demand would
require the live poultry dealer to
provide a new Disclosure Document and
what the required timeframe would be
for providing the document.
AMS response: AMS requires that live
poultry dealers provide a new
Disclosure Document when a live
poultry dealer seeks to renew, revise, or
replace an existing broiler growing
arrangement, or to establish a new
broiler growing arrangement. This is
important for providing growers with
the information they need because it ties
disclosure requirements to the
production contract. As dealers must
include placements and densities in the
contracts, any changes to these terms
would necessitate changes to the
contracts, and thus the provision of a
new Disclosure Document. The
provision of such information up front
is important for prospective growers,
and for current growers that may be
making a change based on a new
housing specification, to understand,
evaluate, and compare contracts.
Updating disclosures when there are
changes in the production contract
provides similar protections for growers
when contracts may change. To the
extent that growers may not wish to
accept the contract, for example, where
they may consider growing for another
live poultry dealer, the additional
transparency at those times is useful.
Additionally, while growers may not, as
a practical matter, have a choice
regarding certain changes to ongoing
poultry production contracts, the
additional transparency provided by the
disclosures will enable growers to better
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plan their management of those
contracts.71
live poultry dealers supported providing
disclosures in the preferred language of
poultry growers who are not native
Additional Advisories
speakers of English. A commenter said
Comment: In response to AMS’s
the grower or prospective grower should
request for information regarding
have the right to request that the dealer
whether additional changes to the
provide the Disclosure Document in
Disclosure Document would be
their primary language and that all time
appropriate, several non-profit
limits be tolled until the dealer provides
organizations said AMS should require
an adequate translation, noting the
live poultry dealers that revise a signed
burden on non-native English speakers
contract to compensate poultry growers
to navigate the arrangement in English
if the revisions lead to losses for the
is significantly greater than the burden
growers. The commenters said the point on a dealer to provide the information
of the disclosures is to provide
in the grower’s language. Commenters
transparency about the arrangement;
noted the substantial number of farmers
therefore, any changes to the
who speak languages other than English
arrangement at the expense of the
and stressed the importance of making
poultry grower should be compensated
sure language barriers do not prevent
or considered fraudulent.
poultry growers from fully
AMS response: The scope of this rule
understanding the potential costs and
is transparency in agreements between
benefits of a poultry growing
live poultry dealers and poultry growers
arrangement. In addition, several
with whom they contract. AMS
commenters recommended that AMS
recognizes the issue raised by the
provide educational outreach to noncommenters is a concern because
English-speaking communities in their
growers rely upon the contract terms
native languages.
when entering the agreement, and it is
AMS response: This rule is intended
problematic if subsequent revisions
to promote transparency in poultry
result in financial losses that
production contracting and give poultry
presumably would not have occurred
growers and prospective poultry
under the original terms. However, the
growers relevant information with
remedy proposed by the commenters is
not within the scope of this rule. If a live which to make more informed business
decisions. For the disclosure
poultry dealer deceives a grower
information to have value and be of use
through a ‘‘bait and switch’’ agreement
to a poultry grower, the poultry grower
as described, remedies may exist
through enforcement by USDA and DOJ, must have basic comprehension of the
information’s meaning so that the
or in private actions by the grower in
provision of this information can reduce
Federal or state court. Therefore, AMS
made no changes to the rule as proposed the potential for deception.
Accordingly, in response to comments,
based on these comments.
AMS added § 201.102(g)(3), which
Readability of Disclosure Document and requires live poultry dealers to present
Provision in Additional Languages
Disclosure Document information
Comment: In the proposed rule, AMS clearly, concisely, and understandably
asked whether the wording of the
for growers. More generally, standard
Disclosure Document was clear and
plain language practice is to write
what changes could be made to improve informational materials in plain, easy to
clarity. Several groups representing
understand language appropriate for the
poultry growers said AMS should
subject and for the intended audience.
ensure the Disclosure Document and
We expect dealers to ensure that
other disclosures are in plain language
growers can easily understand the
and understandable to a wide range of
disclosures, and in our examinations
poultry growers. They said the language may test that to determine whether
should also be unambiguous to avoid
dealers are complying with
discrepancies in interpretation between § 201.102(g)(3). Further, in response to
the agency and other regulators, the
comments, AMS added a requirement in
courts, and live poultry dealers.
§ 201.102(g)(4) that in the event a
AMS also asked whether there are
prospective or current broiler grower
circumstances in which live poultry
notifies the live poultry dealer that they
dealers should be required to provide
have limited proficiency in the
the Disclosure Document in a language
disclosure’s written language, or in the
other than English. Commenters
event the dealer is already aware of such
representing both poultry growers and
limited proficiency, the live poultry
dealer must make reasonable efforts to
71 See https://www.ftc.gov/news-events/news/
assist the grower in translating the
press-releases/2022/09/ftc-chair-lina-m-khan-filesDisclosure Document at least 14
comment-supporting-proposed-usda-protectionspoultry-farmers.
calendar days before the live poultry
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dealer executes the broiler growing
arrangement, provided that the grower
may waive up to 7 calendar days of that
time period.72
As noted by commenters, non-English
speaking growers, including U.S.
natives and immigrants, have played
important roles in the poultry growing
market in multiple localities. Grower
groups have noted concerns over many
years regarding non-English speaking
growers’ ability to understand and
evaluate their contracts and the risks
they are taking in poultry growing.73
The intention of this rule is to assist all
broiler growers in understanding the
information about their poultry growing
arrangement. This includes providing
the information to growers in a language
with which they are familiar. Under this
final rule, the live poultry dealer must
make reasonable efforts to ensure that
growers are aware of their right to
request translation assistance, and to
assist the grower in translating the
Disclosure Document at least 14
calendar days before the live poultry
dealer executes the broiler growing
arrangement (provided that the grower
may waive up to 7 calendar days of that
time period). The timing aligns with the
requirements on the live poultry dealer
under § 201.102(a) to provide the
contract and Disclosure Document to
the grower. Reasonable efforts include
but are not limited to providing current
contact information for professional
translation service providers, trade
associations with translator resources,
relevant community groups, or any
other person or organization that
provides translation services in the
broiler grower’s geographic area. A live
poultry dealer may not restrict a broiler
grower or prospective broiler grower
from discussing or sharing the
Disclosure Document for purposes of
translation with a person or
organization that provides language
translation services. Live poultry
dealers, as parties regularly engaged in
executing poultry growing
arrangements, can be expected to be
able to identify for growers affordable
translation services in a timely manner,
which will assist the grower in
72 As noted previously, Pew Research Center
studies show that the English proficiency of the
Hmong population in the U.S. in 2019 was only
68% and among foreign born Hmong, English
proficiency is just 43%. Abby Budimen, ‘‘Hmong in
the U.S. Fact Sheet,’’ Pew Research Center,
available at https://www.pewresearch.org/socialtrends/fact-sheet/asian-americans-hmong-in-the-us/ (last accessed April 2023).
73 Jess Anna Spier, ‘‘Hmong Farmers: In the
Market and on the Move,’’ (January 1, 2007)
Farmers Legal Action Group, available at https://
www.flaginc.org/wp-content/uploads/2013/03/CLE_
JAS.pdf last accessed 04/06/2023.
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obtaining any necessary translation
services quickly.
AMS is requiring that live poultry
dealers take reasonable efforts to ensure
that growers are made aware of their
right to request translation assistance so
that growers can reasonably access the
assistance with limited risks of
prejudice or discrimination. AMS is not
requiring dealers to provide a
translation because it would be costly
and could deter poultry companies from
working with non-English speaking
growers. Instead, the requirement to
assist growers in obtaining translation
services is a more cost-effective and
flexible approach that conforms with
existing regulatory requirements that
protect growers’ ability to access other
services, such as accounting, financial,
and legal advisors, that growers may
engage to meet their needs in reviewing
what can be multi-hundred-thousand or
million-dollar investments and business
risks. Accordingly, to ensure grower
access to those services, § 201.102(g)(4)
prohibits any restriction on growers’
ability to share the documentation with
translation service providers.
Furthermore, nothing in the rule
prevents companies from providing a
translation provided it is complete,
accurate, and not misleading. Poultry
dealers are strongly encouraged to do so.
To preserve the minimum time period
for grower review, AMS’s requirement
that live poultry dealers assist growers
with accessing translation services must
occur 14 calendar days before executing
the poultry growing arrangement
(provided that the grower may waive up
to 7 calendar days of that time period).
AMS has aligned the translation timing
with the general requirement that the
Disclosure Document be provided 14
calendar days before executing the
poultry arrangement to minimize
complexity in the rule, provided that
the grower may waive up to 7 calendar
days of that time period. As discussed
elsewhere in this final rule, the 14-day
timing requirement only applies where
no additional capital investment is
being made. Where additional capital
investments are being made the
Disclosure Document must be delivered
with the housing specification, which
occurs before the capital investment. As
noted elsewhere in this final rule,
circumstances where no capital
investments are being made tend to
reflect continuity and an established
relationship between the grower and the
live poultry dealer, or circumstances
where a grower is switching without
capital investment. In either case, the
dealer and grower can be expected to be
in ongoing dialogue in the run up to the
period before review, which should
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83237
allow for more flexible timing by both
parties.
The suggestion that AMS provide
educational outreach to non-Englishspeaking communities in their native
languages is noted, and while a
provision for outreach is not included in
this rule, AMS will publish educational
materials online in multiple commonly
spoken languages to provide a basic
level of outreach, in addition to
exploring more opportunities to provide
additional educational outreach.
Other Improvements to Proposed
Disclosure Regime
Comment: In the proposed rule, AMS
invited comments on what else USDA
can do to improve the proposed
disclosure regime, including whether
AMS should provide more information
about the scope of the definition of
deception under the Act. Several nonprofit organizations suggested AMS
establish a definition of deception to
give growers, regulated entities, and
courts a clear understanding of the
intent of the rule.
AMS response: AMS is making no
change based on comments received.
While the particular facts and
circumstances in any individual case
will determine the application of the
prohibition on deceptive practices
under the Act, well- established
principles of deceptive practices under
the Act squarely cover the information
required to be disclosed in this rule.
Taking the formulation set forth in the
1983 FTC Policy Statement on
Deception, deception would require that
the representation, omission, or practice
be likely to mislead the grower, from the
perspective of the grower acting
reasonably in the circumstances, and be
likely to affect their conduct or decision
with regard to the poultry growing
arrangement.74 AMS has crafted this
rule to meet that standard in the
prevention of deception: to provide
information that is important to
reasonable poultry growers’ decisions
relating to contracting and the operation
of their contracts and that addresses
representations, omissions, and
practices that are likely to mislead
growers. Accordingly, AMS finds no
need to further define deception in this
rule.
AMS notes, also, that additional
concepts, formulations, or applications
of deception may be presented in a
separate rulemaking. Other deceptive
74 FTC Policy Statement on Deception, Oct. 14,
1983 (Appended to Cliffdale Associates, Inc., 103
F.T.C. 110, 174 (1984)), available at https://
www.ftc.gov/system/files/documents/public_
statements/410531/831014deceptionstmt.pdf.
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practices are outside the scope of this
disclosure-based rulemaking.
D. Disclosure Document Advisories
In proposed § 201.100(b)(6), (7), and
(8), AMS proposed the Disclosure
Document contain specific verbatim
advisories. The advisories would
summarize provisions of the poultry
grower’s poultry growing arrangement,
the grower’s right to carefully read the
Disclosure Document and all
accompanying material, and the
grower’s right to share the document
with certain others for counsel. The
Disclosure Document advisories would
describe the requirement that the live
poultry dealer furnish a copy of the
Disclosure Document and growing
arrangement a minimum of 14 calendar
days before the dealer executes the
growing arrangement, provided that the
grower may waive up to 7 calendar days
of that time period. When the live
poultry dealer seeks to offer or impose
new or additional housing
specifications that could lead the
poultry grower to make a capital
investment, the advisories would
describe the requirement to provide the
Disclosure Document simultaneously
with a copy of the growing arrangement,
any new or modified housing
specifications that require original or
additional capital investment, and a
letter of intent. The advisories would
also include a provision explaining that
the information is not verified by USDA,
and that false or misleading statements
or material omissions by the live poultry
dealer in the disclosure could constitute
a violation of Federal law, State law, or
both. Inaccurate information provided
in disclosure to growers, as well as other
bait-and-switch tactics, such as making
a material policy change but not through
a new or revised contract, would be
covered under this section. This is
designed to help growers understand
that conduct which violates the rule is
a violation of sec. 202(a) of the Act and
may result in a notice of violation from
USDA or prosecution by the Department
of Justice and that, furthermore, growers
may be able to tap additional remedies
for misrepresentations in these
disclosures under the Act and other
laws as well.
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Statement of Grower’s Rights
Comment: Several non-profit
organizations suggested AMS should
add a requirement that dealers provide
in the Disclosure Document USDA
contact information that would allow
current or prospective poultry growers
to obtain further guidance regarding
their rights and protections.
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AMS response: AMS agrees with this
comment, and has amended the
proposed requirements for the
Disclosure Document to include the
Packers and Stockyard Division hotline
number, along with the address for the
AMS complaint portal, which was
included in the proposed rule. AMS has
additionally included a reference to the
AMS website where live poultry dealers
and growers may access further
information about rights and
responsibilities under the Act.
Providing this contact information to
growers will signal AMS’s intent to
enforce the rule and further facilitate
growers’ ability to contact USDA
regarding potential violations.
Comment: AMS received several
comments about the provision allowing
poultry growers to discuss their
arrangements with business associates.
A non-profit organization suggested that
the rule should ensure a grower’s right
to speak freely about their contracts.
Several commenters said the rule
should increase transparency by
explicitly permitting poultry growers to
discuss poultry growing arrangement
offers and Disclosure Documents with
anyone.
AMS response: AMS continues to
agree growers must be able to consult
with the entities listed in § 201.100(b)
about entering into, renewing, and
operating under such contracts because
those parties are essential for assisting
growers in appreciating the legal,
financial, and operational risks that they
may face. Moreover, the Disclosure
Documents provide critical information
that is core to their ability to provide
that assistance. However, adding to the
particular entities listed in § 201.100(b)
is outside the scope of this rulemaking.
AMS will monitor whether nondisclosure requirements are impeding
the ability of growers to make the most
efficient use of the Disclosure
Documents, including whether such
non-disclosure agreements impede the
ability of growers to seek and obtain
better offers from competing live poultry
dealers. Accordingly, AMS will monitor
and evaluate whether rulemaking to
expand the entities listed in § 201.100(b)
is needed, but made no changes to the
rule as proposed based on these
comments.
Comment: Several live poultry dealers
said the verbatim advisories required by
the proposed rule on the right to obtain
counsel on a contract from certain
trusted advisors and the right to seek
redress from AMS for violations of the
Act are unnecessary because they
distract from the clear terms of the
contract and do not require contractual
provisions to be effective. These
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commenters suggested AMS engage in
targeted educational outreach, work
with State agriculture extension
services, and coordinate with other
industry stakeholders as an alternative
to these advisories.
AMS Response: Based on AMS’s
experience, some growers may not be
aware of their rights under the Act or
may be confused, intimidated, or misled
about asserting those rights where
contracts include confidentiality
clauses. The mandated disclosures
promote transparency and allow
growers to better understand, evaluate,
and compare contracts among dealers.
This minimizes the risk of deception in
the contracting process by ensuring
growers know they have the right to
understand and evaluate offered
contracts by seeking business, legal, and
financial counsel from the entities listed
in § 201.100(b). It is true that certain
information provided by State extension
services, USDA resources, and other
poultry growers under contract with the
same live poultry dealer can help
growers assess the feasibility and
operation of new or revised poultry
growing arrangements. Grower
commenters at listening sessions,
however—in response to rulemaking
proposals—have reported to USDA they
are not sure their contracts allow them
to seek advice from others. Growers
should be assured that seeking such
guidance is not prohibited, regardless of
confidentiality clauses in offered
contracts. Further, AMS agrees that
educational outreach is valuable to the
industry and intends to continue and
enhance efforts in those areas.
Educational outreach, however, is not a
replacement for legal protection. This
rule provides this protection by
requiring inclusion of the advisory
disclosures in the Disclosure Document.
Accordingly, AMS made no change to
the proposed rule based on these
comments.
Comment: A poultry industry trade
association said AMS should omit
requirements that are irrelevant to
determining grower income, such as the
requirement to provide information
about general rights and obligations
under the Act.
AMS Response: AMS does not agree
that disclosures should focus only on
grower income. Each of the disclosure
elements required in this final rule will
have a meaningful impact on growers’
ability to understand and evaluate the
production agreement. At earlier
listening sessions and competition
workshops, USDA heard from growers
that certain information is critical to
their decision making and ultimate
success, and they have urged AMS to
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require dealers to provide this
information. For example, growers have
told us that knowing the live poultry
dealer’s policies related to the sale or
transfer of a poultry growing operation
before they enter a contract and make
associated capital investments would
help them evaluate the long-range risks
of doing so. In another example, growers
knowing the dealer’s policy regarding
feed outages will be better prepared to
avoid such situations or react
appropriately in a timely manner to
minimize the impact of an outage on the
flock. While having such information
forestalls confusion, misunderstanding,
and unnecessary delays for growers, live
poultry dealers also benefit from
providing such information by avoiding
potentially misleading or deceptive
communications and by maximizing
business outcomes efficiently.
Accordingly, AMS made no changes to
the rule as proposed in response to this
comment.
Comment: A poultry industry trade
association said AMS should clarify
what constitutes a ‘‘material omission’’
or ‘‘misleading statement’’ for the
purposes of proposed § 201.100(b)(8)
and asked whether an incorrect forecast
or an unforeseen market change not
contemplated by a disclosure would be
considered ‘‘misleading.’’
AMS Response: The sufficiency and
reliability of disclosures depend heavily
on the facts and circumstances.
Moreover, contract causes of action are,
in general, a function of State law, and
State courts may have different
standards for interpreting ‘‘material
omission’’ and ‘‘misleading statement.’’
The law around ‘‘material omissions’’ or
‘‘misleading statements’’ is a wellestablished part of the law of deception
under the Act, the FTC Act, and other
relevant Federal and State disclosure
laws. AMS made no changes to the rule
as proposed based on this comment.
Comment: A meat industry trade
association said AMS should modify the
rule to consider proprietary and
confidential information that would be
provided to potential growers who
would not necessarily end up with a
business relationship with the live
poultry dealer.
AMS response: AMS has already
explained why the information in the
Disclosure Document does not give rise
to confidential or propriety business
information.
Recommendations for Additional
Advisories
Comment: Multiple commenters
urged AMS to establish that it would be
a violation of the Act for a live poultry
dealer to threaten to retaliate against a
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poultry grower who installs a feed scale
to verify the accuracy of feed deliveries,
and that live poultry dealers should
have to disclose this right in the
Disclosure Document. One commenter
said this right is important because the
tournament system values the growers’
feed-to-weight conversion ratio, and if a
live poultry dealer reports having
provided a higher amount of feed than
was actually provided, the grower is
improperly penalized for having a lower
ratio.
AMS response: This issue is outside
the scope of this rule. This rule focuses
on providing enhanced transparency to
poultry growers and does not address
retaliation and related matters. In
addition, AMS has proposed a rule that
would address retaliation against
producers including poultry growers.75
AMS is also considering additional
steps to address unfair practices as set
forth in the June 8, 2022, Advanced
Notice of Proposed Rulemaking
‘‘Poultry Growing Tournament Systems:
Fairness and Related Concerns.’’
Therefore, AMS made no changes to the
rule as proposed based on this
comment.
Comment: Multiple commenters said
the Disclosure Document should
include a warning about the dangers of
breathing dust and ammonia, as well as
information about how poultry growers
can protect themselves and their
employees from these dangers. Several
of these commenters said AMS should
provide a fact sheet on respiratory
health hazards. Similarly, a commenter
said AMS should require disclosures to
farmers and to the public of what goes
into the feed for poultry, saying poultry
growers could be irreparably harmed by
handling dangerous chemicals and
consumers could be harmed by
ingesting these chemicals.
AMS response: This issue is outside
the scope of this rule. The rule focuses
on transparency regarding the financial
risks and benefits of raising poultry
under a poultry growing arrangement.
AMS does not discount the commenters’
concerns here and recognizes there are
risks associated with growing poultry
that are not directly financial. Nor does
AMS discount the possibility that
deception and unfair practices may
extend to injuries beyond promises of
financial gain. Because this comment is
outside the scope of the rule, AMS made
no changes to the rule based on these
comments. AMS, however, encourages
75 Agricultural Marketing Service, ‘‘Inclusive
Competition and Market Integrity,’’ Proposed Rule,
Oct. 3, 2022, 87 FR 60010, available at https://
www.federalregister.gov/documents/2022/10/03/
2022-21114/inclusive-competition-and-marketintegrity-under-the-packers-and-stockyards-act.
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83239
all potential and current poultry
growers to educate themselves on the
various health and safety risks
associated with growing poultry.
E. Financial Disclosures
AMS proposed to require live poultry
dealers to provide various financial
disclosures to poultry growers,
including disclosure of bankruptcy
filings, grower terminations, and grower
payment history and projections.
Disclosure of Bankruptcy Filings
AMS proposed in § 201.100(c)(2) to
require the Disclosure Document to
contain a summary of bankruptcy filings
in the prior 6 years for the live poultry
dealer and any parent, subsidiary, and
related entity.
Comment: Several poultry and meat
industry trade associations argued that
the requirement to disclose past
bankruptcy filings is unnecessary. For
example, a commenter said bankruptcy
filings are rare among live poultry
dealers and are already public if
interested parties wish to obtain them.
Another commenter noted that this
information would be difficult to
maintain for larger companies with
multiple subsidiaries and said it is
unclear why disclosing a live poultry
dealer’s bankruptcy history would be
relevant to determining a poultry
grower’s earnings under a contract, or
why this requirement is for a 6-year
period rather than 5 years as with other
disclosure requirements in the rule.
AMS response: The financial stability
of a dealer is a relevant factor for
prospective growers to consider. Dealers
or complexes that are underperforming
financially may be subject to closure or
reduced production levels, resulting in
negative effects on grower revenue and
potential contract termination. For
example, numerous grower contracts
were terminated as a result of the
Pilgrim’s Pride bankruptcy in 2008. Had
those growers understood the financial
state of the company and the risk to
their operations, they may have elected
to work with a different dealer, not
entered the business at all, or taken
other measures to protect themselves
from the risk of financial loss. In
addition, because corporate
relationships may not be known to
growers, the public nature of filings may
be inadequate to effectively
communicate this type of risk. However,
to improve the uniformity of
recordkeeping for this disclosure regime
in the final rule, and in response to
comments, AMS has elected to adjust
the bankruptcy information reporting
period required by § 201.102(c)(2) to 5
years.
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Grower Termination and Bankruptcy
Disclosures
In the proposed rule, AMS asked if it
should require dealers to disclose the
contractual grounds for termination or
suspension of the poultry growing
arrangement.
Comment: Several commenters
suggested AMS should require live
poultry dealers to disclose the
contractual grounds for termination or
suspension of the poultry growing
arrangement. These commenters said it
is important for poultry growers to
know the circumstances under which
the company can terminate the contract
and leave the grower without income
because growers make a substantial
investment under the contract
arrangement.
AMS response: Current regulatory
requirements adequately cover this
issue. Under existing regulations at
§ 201.100(c)(1), live poultry dealers are
required to provide growers a copy of
their contract that includes, among
other things, ‘‘the duration of the
contract and conditions for the
termination of the contract by each of
the parties.’’ Existing regulations at
§ 201.100(h) also require live poultry
dealers to provide terminated growers
with written notice, including the
reason for termination and appeal
rights. This information is shared
between dealers and individual
contracted growers only, and is not part
of the Disclosure Document required of
broiler dealers under § 201.102. AMS
made no changes to the current
regulations based on these comments.
Comment: In other responses to
AMS’s request for input about contract
terminations, multiple non-profit
organizations asked AMS to require live
poultry dealers to disclose the annual
percentage of contracts they terminated
over a certain period. The commenters
said these disclosures would give
growers a sense of the nature of the
contract relationship, as well as the
range of contract cancellation risks. One
commenter noted this information is
necessary for growers to determine the
likelihood of failure. One commenter
also suggested AMS require dealers to
provide information about the most
common reasons for termination. This
commenter further suggested that live
poultry dealers should include a
summary of the average rate of
bankruptcies among growers who have
worked with that dealer over the past 5
years, as well as information on the
most common reasons why growers may
have filed for bankruptcy.
AMS response: In the proposed rule,
AMS had not required live poultry
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dealers to provide information about
grower turnover rates. However, AMS
agrees with commenters’ suggestions
that disclosures related to the rates of
contract termination and non-renewal
with a live poultry dealer could help
current and prospective poultry growers
better assess the stability of the dealer’s
contract relationships. In requesting
disclosure of bankruptcy and litigation,
AMS was seeking to capture the risk
that might arise from termination or
unstable relationships. Grower turnover
rates are, in AMS’s views, a useful
metric to assess those risks, as well as
to assess grower satisfaction with the
dealer. In AMS’s experience regulating
the industry, grower turnover rates
commonly reflect changes to poultry
sales in the wholesale and retail
marketplace, as well as general live
poultry dealer grower management
practices. Local turnover rates might
stem from regional management
practices, local agent practices, or
changes in local agricultural or even
labor markets. Local turnover rates may
also reflect company-wide policy and
management of poultry production,
suggesting that growers need to
understand and compare both local
complex and company-wide grower
turnover history in order to evaluate
offered poultry growing arrangements.76
As such, grower turnover rates provide
information that is similar to, but also
more holistic, than bankruptcy or
litigation, and assist the grower in
evaluating the risk of termination or an
unstable or unsatisfactory relationship.
Accordingly, AMS has added a
requirement to incorporate broiler
grower turnover rates at the local
complex and company level into the
Disclosure Document. This information
will allow growers to compare the
turnover rates of multiple live poultry
dealers as a risk factor when making
contracting decisions. Section
201.102(c)(5) is added to the final rule
and requires live poultry dealers
engaged in the production of broilers to
disclose average annual broiler grower
turnover rates for the previous calendar
year and the average of the 5 previous
76 In a case involving Arkansas growers, Judge
Higginson wrote ‘‘[c]iting a downturn in the poultry
industry, PPC terminated its contracts with the
Growers and filed for bankruptcy.’’ Growers v.
Pilgrim’s Pride Corp. (In re Pilgrim’s Pride Corp.),
706 F.3d 636, 638 (5th Cir. 2013). In a case
involving terminated Florida growers, a Pilgrim’s
Pride executive was reported to have testified that
‘‘terminating the contracts (was) necessary and the
best option . . . slowing or stopping operations at
Pilgrim’s Pride plants is expected to save the
company $250 million this year,’’ from ‘‘Pilgrim’s
Pride cut growers based on production factors,’’
Meat + Poultry (March 11, 2009).
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calendar years at both the company
level and the local complex level.
AMS is requiring grower turnover
rates for the previous year and the
average of the 5 previous years at both
the complex and company level,
whereas it is requiring dealers to
provide previous-year average grower
payment information only at the
complex level and not at the company
level (as in proposed § 201.100(d)(1)).
AMS is adopting this distinction
because company-wide grower turnover
metrics provide the grower with an
important picture of termination or
other risks that may arise from company
decision-making relating to sales market
fluctuations—for example, if a dealer
terminates growers quickly in response
to sales changes. Complex level
turnover rates are also important to
growers because they are likely to
provide insight into how the company,
and in particular its local agents,
interact with growers. AMS developed
detailed instructions for how to
calculate average annual broiler grower
turnover rates, which are included in
Form PSD 6100, to facilitate ease of
compliance by live poultry dealers.
As explained in the previous
comment response, live poultry dealers
are required to provide individual
terminated growers with written notice,
including the reason for termination and
the grower’s appeal rights. However,
AMS has determined that this final rule
should not require dealers to explain the
reasons for terminations of other grower
contracts on a complex- or companywide basis in the Disclosure Document.
AMS knows through experience
working with the industry that poultry
dealers and growers can have widely
different perspectives on the causes and
circumstances for contract terminations.
Similar to a grower’s evaluation of a
dealer’s bankruptcy or litigation history,
growers can consider grower turnover
rates when evaluating offered contracts,
but live poultry dealers cannot
reasonably be expected to convey the
varying reasons that may be the basis for
terminating contracts as that would at a
minimum be burdensome and may in
some circumstances reveal proprietary
business information or create litigation
risks to the company.
AMS also does not agree that dealers
should be required to furnish
information about the rates and causes
for grower bankruptcies. AMS does not
expect live poultry dealers to know all
the rates or reasons for individual
growers’ personal or business decisions
to file for bankruptcy, which may or
may not have anything to do with the
poultry growing arrangement.
Accordingly, no changes to the rule as
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proposed were made on the basis of
these comments.
Facilitating Harmful Coordination by
Integrators
In the proposed rule, AMS asked
whether certain types of financial
disclosures could facilitate harmful
coordination by integrators and, if so,
how this risk could be mitigated.
Comment: A non-profit organization
said the large market share held by a
few large companies, along with the
existence of specialized data companies
that service large integrators, has
already led to harmful coordination to
reduce both contract grower payments
and wages for poultry industry workers.
This commenter said the solution to
avoid harmful coordination by
integrators would be for USDA to work
with DOJ to crack down on
anticompetitive practices, rather than to
limit disclosure of information to
prospective and current contract
growers.
AMS response: AMS is committed to
working with DOJ to curb illegal trade
practices, including antitrust violations,
but antitrust violations are not the only
behavior regulated by the Act. This rule
is focused on providing enhanced
transparency to current and prospective
poultry growers because of the
persistent challenges they have faced for
many years with respect to their poultry
growing arrangements. Enhancing
transparency and reducing information
asymmetry through this rule will allow
growers to better understand evaluate,
and compare contracts to reduce
deceptive practices. AMS made no
changes to the rule as proposed based
on this comment.
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Effect of Financial Disclosures on
Lending System
In the proposed rule, AMS requested
comment on the effect the proposed
financial disclosures would have on the
lending system and on the provision of
credit to growers.
Comment: A non-profit organization
said poultry growers finance the barns
they use through loans, which are often
guaranteed through USDA’s Farm
Services Agency (FSA) or the Small
Business Administration (SBA).
According to this commenter, when
growers are unable to pay their loans
because of inadequate pay from the
tournament system, taxpayers end up
paying for them. This commenter said
FSA should use the information
disclosed under the proposed rule to
refuse to guarantee loans unless the
contract terms are at least as long as the
life of the loan.
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AMS response: AMS noted in the
proposed rule that FSA has recognized
repayment reliability concerns related to
informational asymmetries and their
effect on poultry grower payments and
total revenues. Under the loan
repayment program, FSA assesses the
‘‘dependability’’ of poultry production
contracts and requires contracts to
provide assurance of the grower’s
opportunity to generate enough income
to ensure repayment of the loan by
incorporating requirements such as a
minimum number of flocks per year or
similar quantifiable requirements.77
The commenter’s request that FSA
require contract length match
repayment term is outside the scope of
this rulemaking. However, AMS is
committed to working with FSA and
SBA on poultry industry lending
practices. AMS made no changes to the
rule as proposed based on this
comment.
Disclosure of Grower Payment History
and Projections
In § 201.100(d) (1), (2), and (3) of the
proposed rule, AMS proposed to require
the Disclosure Document to contain two
tables. One table would show the
average annual gross payments, in U.S.
dollars per farm facility square foot, to
poultry growers for the previous
calendar year for all complexes owned
or operated by the live poultry dealer.
The second table would show the
average annual payments, in U.S.
dollars per farm facility square foot, to
poultry growers at the local complex.
The proposed rule also specified how
the tables should be organized and how
values should be calculated.
Under the proposed rule, if a live
poultry dealer modified the building
specifications such that the grower
would be required to make additional
capital investment, or the tables of
payment history would not accurately
represent projected grower annual
payments, the live poultry dealer would
be required to provide additional
information. The dealer would be
required to provide tables presenting
projections of average annual gross
payments to growers under contract
with the complex, and having the same
housing specifications, for the term of
the poultry growing arrangement, at five
quintile levels expressed as dollars per
farm facility square foot. Dealers would
further be required to explain why the
payment history information would not
77 USDA Farm Service Agency, Guaranteed Loan
Making and Servicing 2–FLP (Revision 1) pp.8–86
(October 2008). https://www.fsa.usda.gov/internet/
FSA_fFile/2-flp.pdf; accessed 1/3/2022.
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83241
accurately represent projected future
payments.
AMS asked whether the proposed
grower payment history and projection
disclosures were adequate to enable
growers to make sound business
decisions.
Comment: Several grower groups and
State attorneys general indicated
support for the proposed grower
payment history information and
projection disclosures. Commenters said
the information should increase
transparency for growers and that
having information about real growers’
outcomes in the region would help
potential growers make decisions about
entering into poultry growing
arrangements. Commenters said that
reporting average grower pay in
quintiles helps prospective growers
understand and compare income
variations and evaluate their own
income variation risk accordingly. On
commenter explained that having
realistic payment information would
allow farmers to plan financing more
accurately and avoid such predicaments
as revenue shortfall in the face of
equipment replacement and repair
costs.
AMS Response: AMS notes
widespread support among commenters
for the utility of the proposed
disclosures for growers. In this industry
as well as many others, past
performance is a commonly relied-upon
predictor of future performance. As
explained in this section and elsewhere
in this document, dealer discretion with
respect to production inputs, and
grower discretion with respect to flock
management decisions and applied
skills, are also determinative factors in
grower outcomes. Thus, historical
payment data and future projections
become the baseline upon which
growers can evaluate likelihood of their
success or failure under poultry growing
arrangements.
Comment: A number of industry
groups said providing the disclosures
would impose significant costs on
dealers but would be of little value to
poultry growers.
AMS response: As detailed in the
Regulatory Impact Analysis below, AMS
has determined that except for the first
year that the rule is effective, the
benefits of this rule to growers exceed
costs to dealers. Benefits include
reduced uncertainty in the broiler
grower’s revenue stream, reduced risk of
retaliation and potential for fraud and
deception, and more optimal allocation
of capital and labor resources, leading to
improved efficiencies across the entire
industry. First-year costs to live poultry
dealers—following the effective date of
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the rule—include expenses for setting
up new reporting and recordkeeping
processes, which will decrease in
succeeding years. Additionally, in
economic terms, AMS expects total
costs to the industry from the rule—as
with total benefits—will be very small
in relation to the total value of industry
production. Significant benefits in the
form of decision-making tools will
nevertheless accrue to individual
growers given the opportunity to
understand, evaluate, and compare
contract data provided by live poultry
dealers in Disclosure Documents
pertaining to their poultry growing
arrangements.
Comment: One commenter said that
the disclosures would be of little value
to growers because past economic
performance is not a reliable predictor
of future economic conditions. The
commenter asserted that the grower’s
income is determined as specified in the
contract and driven primarily by the
grower’s skill and care.
AMS Response: AMS acknowledges
that items specified in the contract, and
the grower’s skill and care, play
important roles in grower performance.
However, the live poultry dealer
determines many items not specified in
the contract that significantly impact the
grower’s income, such as how many
flocks a grower receives annually and
the number of birds in those flocks. In
addition, in tournament systems, the
grower’s skill and care are supposed to
be rewarded in reference to the skill and
care provided by other growers settling
with them under relative performance
payment contracts. The disclosed
information provides a history of past
grower performances representing the
range of skill and care of the pool of
growers with whom they will be settled,
and who operate under the same
contract at the same complex. This
information will provide the potential
grower a firmer basis for forming
performance expectations than a copy of
the contract and a self-estimation of
their skill and commitment in isolation.
It is true that past economic
performance may not always be a
reliable predictor of future economic
conditions. For example, past economic
performance could not have predicted
U.S. economic conditions following
unanticipated events like a worldwide
pandemic, foreign conflicts, social
upheaval, or an avian flu epidemic.
Nevertheless, past economic
performance is commonly used in many
industries to help predict and plan for
future economic performance.
Actual payment information from the
recent past illustrates how a live poultry
dealer wields its discretion in the
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contract. It offers one of, if not the, best
pieces of available information to
provide growers with a reasonable range
of what their incomes may be, reflecting
the range of grower skills and other
factors present in the marketplace.78
Further, providing only the average, or
no information regarding variability, is
deceptive in the face of payment
variability—a significant complaint that
AMS has received over the years from
growers. Based on AMS’s experience
monitoring these markets, payments to
growers frequently encompass a wide
range above and below the mean
payment level, as well as significant
variation between specific contracts and
grower pools.
In data drawn from a 2011 nationally
representative sample of broiler
growers, the mean payment received by
contract growers was 5.77 cents per
pound, but 10 percent of growers earned
at least 7.02 cents per pound, while 10
percent earned less than 4.32 cents per
pound.79 While the data reported above
range across all growers and all
contracts, payments also range widely
for specific contracts and grower
pools.80 Presenting payment history
information broken out by quintiles (or,
for very small complexes, by mean and
standard deviation) gives insight into
the variability of cash flow within
recent years. As commenters pointed
out, not even the best economic models
can predict the future with a high
degree of certainty, so presenting recent
payment information broken out by
quintiles (or, for very small complexes,
mean and standard deviation) to share
the range of performance is designed to
enable growers to evaluate whether their
potential earnings would be sufficient to
meet personal and business financial
obligations, as well as to better handle
risk and improve farm management. The
rule also recognizes that economic
conditions may vary, and so provides
the opportunity for live poultry dealers
to explain why any future projections
may differ from past outcomes.
Comment: Several commenters
representing poultry industry interests
78 Forecasts of a variable are often based on past
values of that variable. J.C. Brocklebank, D.A.
Dickey, and B.S. Choi, SAS for Forecasting Time
Series (2018): 23.
79 James M. MacDonald, ‘‘Technology,
Organization, and Financial Performance in U.S.
Broiler Production.’’ U.S. Department of Agriculture
Economic Research Service, Economic Information
Bulletin No. 126 (June 2014).
80 Charles R. Knoeber and Walter N. Thurman.
‘‘Testing the Theory of Tournaments: An Empirical
Analysis of Broiler Production. ’’Journal of Labor
Economics 12 (April 1994). Armando Levy and
Tomislav Vukina. ‘‘The League Composition Effect
in Tournaments with Heterogeneous Players: An
Empirical Analysis of Broiler Contracts.’’ Journal of
Labor Economics 22 (2004).
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expressed concerns that any data on
potential future payments is misleading
to growers, given the number of factors
that affect payments and the role of a
grower’s own skill.
AMS response: Grower skill does play
a role in flock performance and
therefore per-flock payments. The
projection quintiles required in this rule
are specifically designed to capture a
wide range of grower performance.
Therefore, the bulk of variability in
future projections—and presumably the
reason for offering projections in lieu of
historical information in the first
place—would be due to anticipated
changes in dealer-controlled factors
such as flock placement frequency and
flock density, changes in production
needs, and changes to the length of
grower contracts. The supposition that
payment disclosures would be
misleading would only be true to the
extent that dealers supply misleading
data related to factors they control. To
do so would be deceptive and a
violation of the Act. Accordingly, AMS
made no changes to the rule as proposed
based on these comments.
Comment: Several poultry and meat
industry trade associations requested
that AMS require only grower payment
history information for the grower’s
complex rather than for all complexes
owned by the live poultry dealer. These
commenters noted that complexes in
other geographic areas face different
economic conditions, such as cost of
living, labor costs, and State and local
taxes, arguing that payment information
for these complexes would not be useful
to poultry growers and would
potentially confuse them.
AMS response: Payment history for
complexes in other geographic areas
may be useful to growers in some
circumstances, in particular, in areas
with only one or two live poultry
dealers where there may not be the
ready availability for growers to
compare what they might earn from
providing poultry growout services.81
However, some factors may vary
regionally, such as labor costs, which
could reduce the usability of the
information. This rule does not require
payment information for complexes in
other geographic areas. Therefore, in the
81 In the last available survey of local markets
(2011), MacDonald and Key found that about one
quarter of contract growers reported that there was
just one live poultry dealer in their area; another
quarter reported two; another quarter reported
three; and the rest reported four or more. James M.
MacDonald, Technology, Organization, and
Financial Performance in U.S. Broiler Production,
EIB–126, U.S. Department of Agriculture, Economic
Research Service, June 2014: 30, https://
www.ers.usda.gov/webdocs/publications/43869/
48159_eib126.pdf?v=0.
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final rule, AMS removed the proposed
requirement in § 201.100(d)(1) that live
poultry dealers provide grower payment
history information for all complexes
they own, instead requiring in
§ 201.102(d)(1) that live poultry dealers
engaged in the production of broilers
provide only tables showing average
annual gross payments to broiler
growers at the local complex.
Comment: A poultry industry trade
association urged AMS not to require
future projections, saying it would be
difficult for dealers to accurately make
such projections, given that they depend
in part on the economic climate and on
other factors that cannot reasonably be
foreseen. This commenter said if AMS
requires projections, they should be
qualified and exempt from
certifications. A trade association
suggested disclosure should include a
disclaimer that past income does not
guarantee future results and that income
will be governed by the terms of the
contract, the party’s performance, and
additional factors neither party has
control over.
AMS response: AMS intends for live
poultry dealers to make and disclose
assumptions relating to projections,
allowing poultry growers to better assess
the context behind them. This final rule
does not require disclosure of
projections to include a disclaimer that
past performance is not likely to reflect
future results but does not prohibit it
either. AMS will carefully monitor the
use of disclaimers to prevent confusion
and deception. To the extent that a
disclaimer is provided in a manner that
helps the growers understand that past
income is not a contractual guarantee to
the grower of such income, it may be
acceptable. But such a disclaimer is not
required, as the Disclosure Document
should already clearly differentiate
between past income and future
projections that are made because past
performance is not likely to reflect
future results. AMS underscores that a
live poultry dealer may not disclaim or
absolve itself of any obligation to
disclose information required to be
disclosed in this rule, waive any
liability under this rule, or confuse or
discourage growers from reviewing the
disclosures set forth under this rule.
Additionally, in the final rule, AMS
has clarified that certifications by
principal executives are made with
respect to the sufficiency of the
governance framework for delivering
accurate and reliable disclosures, rather
than to the specific accuracy of
disclosures to particular growers
because, as discussed elsewhere, such a
certification is more appropriate with
respect to the role of the principal
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executive in providing the necessary
governance and controls to reasonably
provide for accuracy in disclosures.
Comment: Commenters from both the
grower and live poultry dealer sectors
requested more specificity on how to
calculate average annual gross
payments. Although the proposed rule
provided detail on calculations,
commenters stated the instructions
lacked sufficient specificity to assure
that live poultry dealers could comply
and that poultry growers would receive
adequate data on which to base business
decisions.
AMS response: In response to
commenters’ request for specificity on
how to calculate average annual gross
payments, AMS developed detailed
instructions for how to calculate average
annual broiler grower turnover rates,
which are included in Form PSD 6100.
AMS also added a definition in § 201.2
for gross payments, which means the
total compensation a poultry grower
receives from the live poultry dealer,
including, but not limited to, base
payments, new housing allowances,
energy allowances, square footage
payments, extended lay-out time
payments, equipment allowances, bonus
payments, additional capital investment
payments, poultry litter payments, etc.,
before deductions or assignments are
made.
Comment: Multiple commenters
asked AMS to require the Disclosure
Document to include a maximum
percentage variance from the base pay
rate under the contract. These
commenters said this information
would give growers a better idea of the
true range of potential incomes.
AMS response: The disclosure of
payment quintiles or mean and standard
deviation provides substantially more
data points useful to assess payment
variance and range of potential
outcomes compared to maximum
percentage variance, as quintiles show
pay broken down into five bands. Live
poultry dealers will report only a mean
and standard deviation if there are nine
or fewer growers, which provides a
measure of expected outcome and
expected volatility around that outcome.
The base price and the maximum
variance would not give an expected
outcome or volatility measure, nor
would it provide context useful to
establish probabilities of where a grower
would fall in the range. While AMS
understands that growers have
expressed concerns regarding the
maximum variability of pay from the
base pay, the financial disclosures in
§ 201.102(d) provide objectively more
data points and create a more
appropriate context for assessment
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compared to a maximum variance.
While outside the scope of this rule,
AMS is considering other changes to the
poultry grower payment systems. See
June 2022 Advance Notice of Proposed
Rulemaking on ‘‘Poultry Growing
Tournament Systems: Fairness and
Related Concerns.’’ 82 Therefore, AMS
has not required in this final rule
disclosure of maximum percentage
variance from the base pay under the
contract in the financial disclosures.
Grower Variable Costs
Proposed § 201.100(d)(4) would have
required the live poultry dealer to
provide a summary of the information it
collects or maintains relating to grower
variable costs inherent to poultry
production, or costs that may be borne
by the grower. AMS asked whether the
proposed rule listed the appropriate
items regarding grower variable costs
that dealers should list and disclose to
growers. AMS asked whether it should
require dealers to disclose, for example,
information about costs related to
compliance with environmental
regulations, energy, water, and waste
disposal and whether the timing of
housing upgrades is reasonably
predictable enough for those costs to be
included in grower variable costs during
the poultry growing arrangement.
Comment: Several farm bureau
commenters suggested AMS consider
variable costs in different regions, as
these costs vary from region to region
rather than being a ‘‘one size fits all’’
disclosure. These commenters also said
the rule should require disclosure of all
information a dealer intends to collect,
and that all information should be
housed in an encrypted system and not
subject to Freedom of Information Act
requests to protect the privacy of the
grower. A live poultry dealer said
different farms would have different
views on which variable costs are
inherent in poultry production, offering
as examples labor and insurance costs.
A poultry industry trade association
said it is inappropriate for a live poultry
dealer to be required to collect, produce,
or certify the accuracy of information
about grower variable costs, arguing that
growers are responsible for
understanding and controlling their
costs of production. A poultry grower
said AMS should require live poultry
dealers to disclose variable costs
including livestock, housing upgrades,
82 Agricultural Marketing Service, USDA,
‘‘Poultry Growing Tournament Systems: Fairness
and Related Concerns,’’ 87 FR 34814, June 8, 2022,
available at https://www.federalregister.gov/
documents/2022/06/08/2022-11998/poultrygrowing-tournament-systems-fairness-and-relatedconcerns.
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financing costs, and any cost related to
environmental compliance.
AMS response: Growers benefit from
the disclosure of this information on a
local or regional level because it will
better enable them to analyze the
potential profitability of their poultry
growing arrangement or changes thereto.
Such information may be available to
growers through market research
services or in some cases USDA
resources, but to the extent that live
poultry dealers have this information, it
would facilitate growers’ ability to
access it and, consequently, also reduce
information asymmetry, which creates
risks in the contracting process. Based
on AMS’s experience auditing and
investigating live poultry dealers, and
the observation that dealers provide
grower allowances from time to time,
such as for energy, AMS knows that
many live poultry dealers already are
cognizant of factors affecting local and
regional cost structures. This rule does
not require live poultry dealers to
collect the information, but rather
requires that information be disclosed to
growers if live poultry dealers do in fact
collect it. AMS encourages dealers to
disclose the information at the most
granular level that is reasonable and
will work with live poultry dealers to
address questions during
implementation. No changes to the rule
as proposed were made in response to
these comments.
Comment: Multiple commenters
requested that AMS take action to
prevent growers from having to bear the
costs of environmental compliance and
waste disposal, saying that these costs
are related to the system of production
the live poultry dealers dictate and
should not be treated as grower variable
costs.
AMS response: The contractual
distribution of liabilities related to
environmental compliance and waste
disposal are outside the scope of this
rule. To the extent that the costs of
environmental compliance and waste
disposal are grower variable costs under
particular poultry growing
arrangements, they should be disclosed
by the live poultry dealer under the
requirement to disclose information
relating to grower variable costs.
Therefore, AMS made no changes to the
rule as proposed based on these
comments.
Comment: Several non-profit
organizations said AMS should impose
a recordkeeping requirement to ensure
that live poultry dealers cannot skirt the
rules on grower variable costs by failing
to maintain information relating to these
costs. A meat industry trade association
said the proposed requirement to
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produce a summary of information the
live poultry dealer collects or maintains
relating to grower variable costs
inherent in poultry production is
arbitrary and capricious because it lacks
a cost-benefit justification. The
commenter said further that dealers may
have concerns about sharing such data
because they use it for confidential or
proprietary business purposes, and that
dealers are not the best source of
information on grower variable costs
since they do not experience such costs
themselves. A poultry industry trade
association commented that live poultry
dealers do not systematically maintain
all this information. Several non-profit
organizations contended that poultry
companies share detailed market and
grower information with each other
through private data collection firms.
AMS response: The final rule adopts
the proposal that requires live poultry
dealers to include in Disclosure
Documents a summary of information
that is collected by live poultry dealers
pertaining to grower variable costs. The
grower variable cost information is
general, not specific to an individual
grower; thus, if a live poultry dealer
collects this information, they will need
to disclose a summary of it.
Variable costs play a role in grower
profitability, and understanding the
information helps the grower manage
cash flow. Improved grower cash flow
management allows growers to continue
in a productive capacity, benefiting live
poultry dealers as well as themselves.
These costs are directly attributable to
grower production. AMS does not
understand how summarized
information related to these costs could
be construed as confidential business
information. The benefits of disclosing
these costs to growers outweigh the
potential business confidentiality
issues.
Often this type of information takes
the form of sample cash flow budgets or
similar documents, which live poultry
dealers can use to show differences in
variable costs between housing
specifications, allowing growers to
assess differences in fixed costs against
changes in variable costs. In balancing
the live poultry dealer burden against
the grower benefits, AMS sought to
ensure growers have access to this type
of information to the extent that dealers
collect it. For growers contracted with
dealers who do not collect this
information, there are other resources
via the extension service and producer
organizations that may be able to
provide similar types of information.
Section 401 of the Act provides for
recordkeeping requirements of this type;
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no new requirements are necessary for
this provision.
This type of information has value to
many dealers, and AMS does not want
to discourage its collection with
inflexible requirements. AMS will
investigate failures to provide these
summaries where data is collected.
Accordingly, no changes to the rule as
proposed were made in response to
these comments.
Comment: One commenter asked
whether grower variable cost
information has been used collusively,
suggesting that AMS and DOJ
investigate this information and that
poultry growers receive access to it.
AMS Response: Whether live poultry
dealers have used grower variable cost
information collusively is outside the
scope of this final rule, and AMS has
made no changes to the rule as proposed
based on this comment.
Informational Service Contact
Information
Comment: Poultry grower groups
expressed support for the proposed
rule’s requirement that the Disclosure
Document include current contact
information for the State university
extension service office or county farm
advisor’s office that can provide
information about poultry grower costs
and poultry farm financial management
in the grower’s geographic area. Other
commenters from the poultry industry
said this information is already
provided and should not be mandated
by regulation.
AMS response: The Act affords
growers the right to understand,
evaluate, and compare contracts among
dealers to inhibit deceptive practices.
Access to any information about poultry
grower costs and farm financial
management can help growers make
informed business decisions and avoid
their being misled regarding the
advisability of offered contracts. Based
on its experience with record reviews,
AMS is aware and appreciates that some
dealers already include the required
contact information in their contracts,
and wants all growers to have access to
the same information. Further, the
additional burden to dealers associated
with providing this information is
small, as described in the costs section
of the Regulatory Impact Analysis
below. Accordingly, AMS made no
changes to the rule as proposed based
on these comments.
Other Financial Disclosures Not
Currently Included
Comment: A State farm bureau
commenter said that companies should
disclose any requirements for a poultry
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grower to make additional capital
investments and whether the grower is
being paid enough to cover these costs.
According to the commenter, requiring
these disclosures are important because
equipment and housing upgrades
typically benefit the live poultry dealer
at the expense of the poultry grower.
AMS response: The Act requires all
poultry growing contracts to contain the
following language: ‘‘additional large
capital investments may be required of
the poultry grower or swine production
contract grower during the term of the
poultry growing arrangement or swine
production contract.’’ 7 U.S.C. 197a
(b)(1). Additionally, § 201.102(d)(2) of
this rule requires live poultry dealers to
provide a new Disclosure Document,
which includes revenue projections,
when ‘‘housing specifications are
modified such that an additional capital
investment may be required.’’ The
required revenue projections are
intended to help growers and their
business advisers evaluate the proposed
capital improvements to determine
feasibility of the contract. With adequate
information, growers should be capable
of determining whether the projected
revenues are likely adequate to cover
the costs of capital improvements.
Dealers, for whom there is a potential
conflict of interest, should not be
expected to advise growers about
whether projected revenues will cover
capital improvement costs. AMS agrees
with the concerns raised by growers and
has addressed them.
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F. Other Disclosures
Sale-of-Farm Disclosures
In proposed § 201.100(c)(3), AMS
proposed to require the live poultry
dealer to include in the Disclosure
Document a statement that describes the
dealer’s procedures regarding the
potential sale or reassignment of the
poultry grower’s facility. AMS requested
comment on whether the proposed saleof-farm policies are adequate to ensure
transparency and effective grower
decision making.
Comment: Poultry grower groups
expressed support for requiring live
poultry dealers to include a statement
regarding the potential sale or
reassignment of the poultry grower’s
facility. These commenters stated
significant financial harm comes from
dealers revoking the contract for a
grower’s farm, making it unsellable.
Poultry industry groups opposed the
sale-of-farm disclosures, contending the
requirement does not have any bearing
on how much a grower can expect to
earn, is not feasible because a dealer
must consider numerous factors when
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deciding to offer a poultry growing
arrangement to a successive buyer of a
farm, and would require disclosure of
confidential information about dealer
business practices.
AMS response: The ability to exit an
industry or a particular farm location for
whatever reason is an important factor
in understanding and evaluating a
contractual relationship. Although a
dealer’s sale-of-farm policies may not
affect the grower’s immediate earnings
from poultry production, those policies
could very well affect the value of the
grower’s capital investment upon
retirement, for example if the grower
anticipating retirement is unable to sell
the farm to a prospective poultry grower
at a fair price. A grower considering a
poultry growing arrangement must not
be deceived into believing they would
be free to transfer their operations to
prospective buyers or heirs if the live
poultry dealer would not be willing to
consider offering a poultry growing
arrangement to the grower’s successor.
Thus, growers need to understand
dealers’ policies regarding sale or
transfer of the farm and poultry growing
operation before entering contracts with
dealers and before encountering future
scenarios where they choose or are
forced to exit poultry farming. Growers
informed of dealers’ policies and
procedures will have the opportunity to
develop a coherent exit strategy.
Markets become more competitive
with lower hurdles for participants to
enter and exit an industry. If extra
profits are to be made, new entrants will
be attracted. If profits are too low, some
participants will exit the industry.
Greater transparency into the relevant
factors that live poultry dealers use to
evaluate entry and exit from the
industry will aid both growers and live
poultry dealers by providing additional
certainty to growers about the
conditions under which they can enter
and exit. This will enable growers to
better align their sale-of-farm choices to
the needs of live poultry dealers. More
information about the conditions to exit
the industry allows growers to
understand, evaluate, and compare
contracts, preventing deceptive
practices.
AMS does not require that dealers
establish a policy and procedure where
no consistent policy or procedure truly
exists in practice. However, when there
is in fact no policy or procedure —an
assertion which AMS may scrutinize to
ensure compliance with the rule—the
lack of such a policy and procedure
should be disclosed. Similarly, where
the dealer looks to certain facts and
circumstances in practice to evaluate
sale-of-farm circumstances, those facts
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83245
and circumstances should be disclosed
as the dealer’s policies and procedures.
AMS recognizes that dealers must
consider a number of factors when
deciding whether to offer a poultry
growing arrangement to a grower’s
successor, and that not every factor may
be known at the time the original grower
is offered a contract. The rule simply
requires dealers to accurately disclose
their policies or procedures as a
safeguard against grower deception.
Thus, in the final rule AMS is
maintaining the sale-of-farm disclosure
requirement.
Finally, AMS is not requiring the
disclosure of dealers’ potentially
sensitive confidential business
information, such as expansion or
reduction strategies. However, to the
extent that a grower’s ability to exit,
including through retirement, depends
upon such factors at any given time, the
implications of those factors should be
disclosed. Accordingly, AMS made no
changes to the rule based on these
comments.
Policies and Procedures Disclosures
AMS requested comment on whether
it should require live poultry dealers to
disclose policies and procedures for
determining whether a disaster or sick
flock was caused by the dealer or
grower, and how a grower is
compensated under each of these
scenarios. It further sought comment on
whether it should require disclosure of
sick-flock risk when a dealer maintains
policies that do not remove sick flocks
from the tournament.
Comment: Multiple commenters
suggested AMS include requirements
for disclosing live poultry dealer
policies on dealing with sick or diseased
flocks, natural disasters, and other
depopulation events, as well as policies
on grower appeal rights and processes.
These commenters cited the inherent
risk of disease spread among confined
poultry, the potential for growers to face
financial impact from depopulation
events outside of their control, and the
effects of low-quality inputs on
tournament performance. Several
commenters also expressed the need for
clarity regarding processes to address
issues such as feed quality or delivery
timing discrepancies.
AMS response: AMS notes the
significant impact on grower
performance and resulting incomes due
to sick or diseased flocks, natural
disasters, and other depopulation
events, e.g., the COVID–19 pandemic,
avian influenza, weather events, or
other possibly impactful events outside
the grower’s control. Although the event
itself is not under the dealer’s control,
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the dealer may have and apply formal
company policies to management of
those events. For example, a dealer may
follow a company policy of increased
layout time or special treatment for sick,
diseased, or high early-mortality flocks.
However, growers may be unaware of
these policies, in which case they have
agreed to grow poultry for the dealer
without fully receiving key information.
Dealers are in the best position to
inform growers about both the
disastrous events that may occur in
connection with poultry growing and
how the dealers’ policy decisions in
those situations will impact growers’
income. Without up-front clarity about
this information, the dealers’ practices
may be deceptive. AMS has in the past
received a range of complaints regarding
differential treatment between growers
under the same live poultry dealer in
these circumstances. If dealers disclose
their formal disaster response policies—
or the lack of such policies—to growers,
growers can be better prepared for the
possibility that they may be impacted
differentially in certain situations. Such
transparency is intended to mitigate
potential deception.
The types of disclosures requested by
the commenters will provide critical
information up front to growers and
safeguard against such deception.
Therefore, this final rule adds a
provision at § 201.102(c)(4) requiring
live poultry dealers engaged in the
production of broilers to disclose their
policies and procedures to address key
events to growers. These events include:
increased layout time; sick, diseased, or
high early-mortality flocks; natural
disasters, weather events, or other
events adversely affecting the physical
infrastructure of the local complex or
the grower facility; other events that
could result in significant flock
depopulation, affecting grower
payments; feed outages, including
outage times; and grower complaints
relating to feed quality, formulation, or
suitability; as well as any appeal rights
arising out of these events. The policies
and procedures that live poultry dealers
disclose and implement may vary. For
example, a live poultry dealer may
establish an adjusted calculated
payment to growers due to sick,
diseased, or high early mortality flocks,
or the dealer may have a policy that
clarifies an appeals process. AMS does
not require that dealers establish or
follow any one policy and procedure,
but does require dealer’s accurate
disclosure and implementation of any
such policy or procedure as a safeguard
against grower deception. Live poultry
dealers that modify or replace a
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disclosed policy would be required to
provide new disclosures to remain
compliant with the rule.
Comment: A commenter
recommended that AMS require live
poultry dealers to disclose both their
own animal welfare policies and those
of the relevant industry trade groups to
give poultry growers a more holistic
view of their obligations when entering
into the contract and to reduce potential
animal welfare concerns.
AMS response: To the extent live
poultry dealers seek to incorporate
animal welfare and other special
growout requirements, such as for
sustainability or other premium
products, those obligations would need
to be reflected in the contract if they are
to be enforced, and under current
regulations must be provided to the
grower before entering into the poultry
growing arrangement. The Disclosure
Document does not seek to reproduce
the entire contract. Instead, it will
highlight aspects of the contract or
poultry growing arrangement that are
generally not disclosed or are presented
in ways that may be misleading or
otherwise create risks of deception. The
information in the Disclosure Document
will allow growers to analyze the
profitability and financial risks of the
poultry growing arrangement. If animal
welfare and other special growout
requirements give rise to profitability
and financial risks, they would be
considered variable costs for growers
and are required to be disclosed in
accordance with the variable cost
disclosure requirements of this rule. In
addition, the disclosures of average
annual gross payments to broiler
growers would also aid growers in
identification of profitability and
financial risk holistically, which would
incorporate impacts from animal
welfare policies and procedures.
Accordingly, AMS made no changes to
the rule in response to this comment.
Legal Disclosures
In proposed § 201.100(c)(1), AMS
proposed to require the live poultry
dealer to disclose in the Disclosure
Document a summary of litigation over
the prior 6 years between the live
poultry dealer and any poultry grower.
This summary would include the nature
of the litigation, the party that initiated
the litigation, a brief description of the
controversy, and any resolution to the
litigation. AMS also requested comment
on whether legal violations or other
matters that could call into question the
financial integrity of the live poultry
dealer should be disclosed.
Comment: Poultry grower groups and
State attorneys general expressed
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support for the proposed requirement
for live poultry dealers to disclose a
summary of litigation with any poultry
grower in the previous 6 years.
Commenters indicated that access to
live poultry dealers’ ongoing and
previous litigation would increase
transparency in the poultry industry
and lead to more economic stability for
growers. Several commenters also
suggested requiring disclosure of
additional litigation, such as litigation
accusing the dealer or any of its growers
of poultry mistreatment; litigation by
employees; litigation the dealer has
been subject to from DOJ, USDA, or
other Federal agencies; and litigation
brought against corporate successors
and assignees of the dealer.
Multiple poultry industry
commenters raised concerns about the
litigation disclosure requirement,
including that it is overly broad and
does not consider the merits of the
litigation or the reality that cases with
little or no merit often settle. Several
industry commenters also noted the
proposed 6-year period for litigation
disclosures is inconsistent with other
disclosure periods in the rule,
suggesting AMS should limit this period
to 5 years.
AMS response: AMS agrees that
disclosure of litigation between the live
poultry dealer and other poultry
growers is an important piece of
information for growers. AMS does not
agree that this disclosure is overly
burdensome because it is known by the
company and may be disclosed in other
contexts. The litigation disclosure is
important for appreciating the financial
and performance risks that growers may
face, as litigation reflects the company’s
approach to compliance and
performance as they relate to treatment
of growers. AMS is unconvinced
litigation related to animal welfare
issues and employees is correlated with
grower risks and treatment. For grower
disclosure purposes AMS sees
advantages in limiting this disclosure to
grower and live poultry dealer actions.
Similar to the reasoning above, adding
governmental actions would likely
capture controversies unrelated to
grower risks and treatment, and where
overlap exists, very often a private case
will run parallel to a government case.
No changes were made to the rule based
on these comments.
However, to improve the uniformity
of recordkeeping for this disclosure
regime, this final rule changes the
period for which a dealer’s litigation
must be summarized to 5 years, instead
of 6 years as originally proposed.
Because contracts and grower
relationships evolve over time, litigation
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history covering the prior 5 years would
provide information related to the most
current contracts and contract terms.
Requiring additional disclosures
regarding litigation beyond a 5-year
period would be overly burdensome and
costly to dealers.
Comment: A poultry grower group
and an individual said AMS should
require disclosure of any past
government investigations, charges,
arrests, or convictions of a dealer or its
growers or agents for violations of
animal-welfare-related law, such as
State laws against animal cruelty,
neglect, or abandonment.
AMS response: While a live poultry
dealer’s compliance with animal
welfare-related laws could be relevant to
the financial risks of the poultry
growing, AMS does not agree that these
additional suggested disclosures are
necessary. AMS is not presently aware
of such a pattern or practice of
intentional or reckless noncompliance
with animal welfare standards and
makes no changes to the proposed rule
based on these comments.
Grower Appeals
Comment: Multiple commenters
representing poultry growers
recommended that AMS require live
poultry dealers to maintain an appeals
process for growers to report any issues
that affect how their flocks perform or
how their pay is calculated. They also
recommended the Disclosure Document
disclose the details of the dealer’s
appeals process, including the method
for submitting an informal appeal of a
live poultry dealer’s contract
performance and how these appeals will
be resolved. The commenters said such
requirements would increase fairness
and transparency for poultry growers.
AMS response: As described in the
preceding comment summaries, this
final rule requires disclosure of live
poultry dealers’ policies and procedures
regarding certain matters or
circumstances, including any grower
rights to challenge or appeal dealer
determinations arising from those
matters or circumstances. This final rule
also requires dealers to disclose policies
regarding growers’ appeals procedures if
they exist. AMS supports the creation of
appeals policies; however, mandating
their creation is outside the scope of this
rulemaking. However, if a dealer has no
such policies or procedures, this should
be disclosed. Understanding whether
and how growers may report issues
affecting flock performance, or to
challenge or appeal dealer
determinations will aid growers in
decision making and reduce confusion
that may arise in times of disease or
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other disaster, or from uncertainty or the
exercise of discretion by live poultry
dealers and their agents in the field.
Accordingly, in response to
comments, AMS added a provision in
§ 201.102(c)(4) of this final rule that
requires live poultry dealers engaged in
the production of broilers to disclose
their policies and procedures on a
number of specific matters or
circumstances and to disclose any
policies regarding grower appeal rights
and processes arising out of these
matters or circumstances.
Other Comments About Disclosures
Comment: Several organizations
representing poultry growers suggested
AMS require other types of disclosures
that would provide more transparency
for current and prospective poultry
growers. These commenters said AMS
should require live poultry dealers to
prominently disclose the risk of entering
a poultry contract in that area if there
are fewer than three options. Some
commenters suggested AMS should
alert poultry growers to the business
risks proposed by regional monopsony
and provide integrator options within a
50-mile radius of the prospective or
current poultry grower’s facility.
AMS response: AMS does not agree
that further warnings are needed at this
time, as the required disclosures aim to
give poultry growers the information
needed to understand the risks of
entering into a poultry growing
arrangement in any market, including
where there are only a small number of
dealers. No changes to the rule were
made in response to these comments.
Comment: Some commenters said a
live poultry dealer should be required to
disclose known health risks associated
with birds that the live poultry dealer
has supplied, the expected pre-slaughter
mortality rate of the birds based on the
live poultry dealer’s experience with
similar growers, the most common
causes of pre-slaughter death, and other
aggregated health data known to the
dealer.
AMS response: AMS is maintaining
without change in the final rule the
proposed requirement that live poultry
dealers disclose known flock health
impairments. AMS does not agree with
comments that disclosure of an
expected mortality rate or information
about the causes of pre-slaughter death
or other aggregated health data should
be included. The expected mortality rate
is not data a dealer can readily
determine, and the benefit to growers is
not clear. This final rule requires live
poultry dealers to include in the
Disclosure Document contact
information for local extension service
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83247
offices that may be able to provide the
type of information commenters seek.
No changes to the rule as proposed were
made based upon this comment.
Comment: A commenter urged AMS
to require disclosure of any poultrywelfare advocacy campaign launched
against the live poultry dealer in the
previous 6 years, along with a summary
of the types of animal health and
welfare-related complaints lodged
against either the dealer or its growers.
This commenter also recommended that
AMS require dealers to disclose their
animal health and welfare policies in
pre-contract disclosures, saying that
such policies affect potential grower
earnings. The commenter stated further
that health and welfare policy and
litigation disclosure would let
prospective growers make informed
decisions about legal and reputational
risk and potential animal suffering they
might face.
AMS response: It would be difficult
for AMS—and possibly even for live
poultry dealers—to determine what
constitutes an animal welfare campaign
or whether such a campaign has any
validity. Presumably, such campaigns
launched against live poultry dealers,
including any associated litigation, are
highlighted in the public media and
available to interested growers. Whether
or how such campaigns should be
disclosed to growers is not
contemplated in this final rule, which
focuses on the information AMS knows
to be essential for informed grower
decision making.
Most live poultry dealers require
growers to follow prescribed animal
welfare guidelines or policies, and
dealers must include those policies in
the poultry growing contracts if growers
are to be held accountable for them. To
minimize additional burden on live
poultry dealers, the final rule requires
the Disclosure Document to highlight
only that contract information AMS
finds to be most essential to grower
decision making related to poultry
grower contracting to ensure those
provisions are transparent for growers.
Under § 201.102 of the final rule,
growers are provided with the
Disclosure Document simultaneously
with the offered poultry growing
arrangement, and growers are given
adequate time to review both prior to
entering into or renewing contracts.
Accordingly, AMS made no changes
to the proposed disclosure requirements
based on this comment.
G. Governance and Certification
The proposed rule included
provisions on governance and
certification in §§ 201.100(f) and (g).
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AMS proposed to create a new
§ 201.100(f) to require live poultry
dealers to establish, maintain, and
enforce a governance framework that is
reasonably designed to ensure the
accuracy and completeness of the
Disclosure Document, and to ensure that
live poultry dealers comply with all
their obligations under the Act and its
regulations. This proposed framework
included audits and testing, as well as
reviews of an appropriate sampling of
Disclosure Documents by the principal
executive officer or officers. AMS also
proposed to require officers of the live
poultry dealer’s company to certify that
the company complies with the
governance framework requirement and
that the Disclosure Document is
accurate and complete. In addition,
AMS proposed to require live poultry
dealers to include a signature page in
the Disclosure Document containing a
statement informing current and
prospective growers of the potential for
violations. The live poultry dealer
would be required to obtain a grower’s
dated signature on the signature page
and to retain a copy of the dated
signature page for 3 years following
expiration, termination, or non-renewal
of the poultry growing arrangement.
In the proposed rule, AMS invited
comments on whether the proposed
governance structure is appropriate and
sufficient for ensuring the accuracy of
information provided in the Disclosure
Document, whether it is appropriate for
dealers, and whether there were other
ways it could sufficiently ensure the
completeness and accuracy of the
Disclosure Document. AMS also invited
comments on whether it should collect
disclosure data and, if so, how it might
use such data to enhance compliance
and accuracy and monitor for possibly
deceptive practices. AMS also proposed
to require the principal executive officer
or officers of the live poultry dealer’s
company to certify accuracy and
compliance and to require dealers to
obtain a poultry grower’s dated
signature to show receipt.
Governance Structure Adequacy for
Accurate Information
Comment: Several commenters
suggested USDA conduct audits, with
some commenters also suggesting the
audits be random or unannounced.
These commenters indicated conducting
audits would help ensure that live
poultry dealers make accurate
disclosures.
AMS response: AMS agrees that
regular compliance reviews are
important tools to ensure compliance
with the Act and regulations
thereunder. Regular AMS audits and
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compliance reviews encourage live
poultry dealers to put in place the
oversight and internal procedures
necessary to ensure compliance. Audits
and compliance reviews may also
enhance compliance by catching
problems at an early stage, before they
become violations that result in larger
scale impacts. They also enhance AMS’s
familiarity with industry practices,
which enables more effective regulatory
guidance and enforcement. AMS
already conducts regular reviews of live
poultry dealers’ compliance with
regulations under the Act—as reported
in AMS’s Packers and Stockyards
Division Annual Report—and AMS
intends to incorporate compliance with
this final rule into those existing regular
audits.83 Currently, a portion of those
compliance reviews are unannounced.
Therefore, AMS made no changes to the
proposed rule based on these comments.
Governance Structure Burden on
Dealers
Comment: Poultry industry
commenters expressed concern about
the necessity and costs of the proposed
governance structure and its potential
for creating liability issues. For instance,
commenters noted that live poultry
dealers already are required to meet fair
dealing requirements under the Act and
have incentive to provide accurate
information to current or potential
growers, making the proposed
provisions redundant. Commenters
asserted the proposed scheme would
take away dealer flexibility to
implement compliance programs that
meet their needs. Commenters also state
that the ‘‘principal executive officer or
officers’’ of many companies are remote
from day-to-day responsibilities related
to the information proposed for
inclusion in the Disclosure Document
and are thus not in a position to certify
it. Commenters suggested that AMS
underestimated the costs of the
proposed governance framework
because it did not take into account its
requirement that firms evaluate their
obligations under all regulatory
requirements contained in the Act
rather than just those contained in the
proposal. An industry association
asserted the agency cannot point to an
authority within the Act that allows it
to impose a ‘‘burdensome and
unnecessary governance and audit
framework’’ on live poultry dealers.
This commenter also argued the
83 U.S. Department of Agriculture, Agricultural
Marketing Service—Packers and Stockyards
Division. (2020). P&SP 2020 Annual Report.
Retrieved from https://www.ams.usda.gov/sites/
default/files/media/PackersandStockyards
AnnualReport2020.pdf.
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proposed governance requirements are
arbitrary and capricious as they reflect
a fundamental lack of understanding of
the management structure and
governance of live poultry dealers.
AMS response: Section 401 of the Act
requires every poultry dealer to ‘‘keep
such accounts, records, and memoranda
as fully and correctly disclose all
transactions involved in his business.’’
Under the Act, the Secretary may
‘‘prescribe the manner and form in
which such accounts, records, and
memoranda as fully and correctly
disclose all transactions involved in his
business.’’ The proposed rule requires
that poultry dealers disclose important
information to growers to prevent
deception. Information furnished by
dealers under the rule must be accurate
and complete. In order to ensure that
dealers can provide such required
information accurately and
continuously, AMS prescribes that
dealers must at minimum establish a
reasonably designed underlying
governance framework and processes.
Without such an established framework
and processes, dealers would be
providing this information to growers in
an inconsistent manner that would
increase the likelihood of inaccuracy
and incompleteness and hence increase
deception.
In building on longstanding, existing
requirements under the Act to maintain
books and records, AMS recognizes that
additional steps are necessary owing to
the more complex disclosure process
contemplated by this final rule and the
reliance that growers will place on it in
avoiding deception. To help strike the
right balance between stringency in the
controls necessary to achieve accuracy
and the flexibility necessary to
accommodate diverse business
operations, AMS takes note of the
experience of—and mandates
governing—other Federal regulatory
agencies engaged in setting
requirements for companies to provide
disclosures to market participants that
depend upon them. It also considers
similar compliance mandates, such as
the certification mandates set forth
under the Sarbanes-Oxley Act of 2002
(section 302) and the provisions of the
Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 named
after former Federal Reserve chairman
Paul Volcker, commonly known as the
Volcker Rule (section 619). In the case
of those financial and market regulatory
reforms, Congress and regulators saw it
necessary to enhance the accountability
of senior officers to achieve the goal of
effective and reliable disclosure and
compliance by larger companies for the
benefit of smaller, more diffuse market
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participants. Large-scale financial
scandals highlighted the insufficiency of
relying on generic fair dealing or
liability requirements or other marketdriven incentives to provide accurate
information. Criminal and civil price
fixing in the poultry sector, including a
guilty plea in 2021 by one of the largest
poultry processors and civil consent
decrees relating to a conspiracy to
suppress wages under Section 1 of the
Sherman Act, 15 U.S.C. 1, and
deception under the Packers and
Stockyards Act,84 underscores the
presence of similar risks in the poultry
sector. The sizable imbalance of power
between poultry processors and
growers—including as reflected in the
longstanding series of concerns around
retaliation—further underscores the
need for heightened accountability
requirements set forth preemptively
through a governance framework as
provided for in this rule.85
The role of the governance framework
required by this final rule is to ensure
that the company has in place specific
steps that it will take to comply with
this rule. The governance framework is
intended to be strict enough to achieve
its intended compliance goal of
84 Plea Agreement: U.S. v. Pilgrim’s Pride Corp.,
Feb. 23, 2021, 20–cr–00330–RM, available at
https://www.justice.gov/atr/case-document/file/
1373956/download. Consent Decree: U.S. v. Cargill
Meat Solutions. Corp., et al. (Sanderson Farms, Inc.,
Wayne Farms, LLC), July 25, 2022, 1:22–cv–01821–
ELH, available at https://www.justice.gov/opa/pr/
justice-department-files-lawsuit-and-proposedconsent-decrees-end-long-running-conspiracy.
85 On the other hand, as they facilitate packers
and live poultry dealers’ control across the supply
chain, contracts can shift certain risks onto or
between producers. See, e.g., Michael Kades,
‘‘Protecting Livestock Producers and Chicken
Growers,’’ Washington Center for Equitable Growth
(May 5, 2022), available at https://
equitablegrowth.org/research-paper/protectinglivestock-producers-and-chicken-growers/; Steven
Y. Wu and James MacDonald, ‘‘Economics of
Agricultural Contract Grower Protection
Legislation,’’ Choices, Third Quarter, 2015: 1–6,
available at https://choicesmagazine.org/choicesmagazine/theme-articles/current-issues-inagricultural-contracts/economics-of-agriculturalcontract-grower-protection-legislation; Department
of Justice. ‘‘Competition and Agriculture: Voices
from the Workshops on Agriculture and Antitrust
Enforcement in our 21st Century Economy and
Thoughts on the Way Forward.’’ May 2012.
Available at https://www.justice.gov/atr/page/file/
1534736/download; Mary K. Hendrickson, et al.,
‘‘The Food System: Concentration and Its Impacts,’’
A Special Report for Farm Family Action Alliance,
May 2021, available at https://farmaction.us/
concentrationreport/; C. Robert Taylor, ‘‘Harvested
Cattle, Slaughtered Markets,’’ April 27, 2022,
available at https://www.antitrustinstitute.org/workproduct/aai-advisor-robert-taylor-issues-newanalysis-on-the-market-power-problem-in-beef-laysout-new-policy-framework-for-ensuringcompetition-and-fairness-in-cattle-and-beefmarkets/; Peter Carstensen, ‘‘Buyer Power and the
Horizontal Merger Guidelines: Minor Progress on an
Important Issue,’’ 14 U. Pa. J. Bus. L. 775 (2012),
available at https://repository.law.wisc.edu/s/
uwlaw/item/29746.
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ensuring accurate and reliable
disclosures that are necessary for
growers to understand, evaluate, and
compare contracts and operational risk.
Yet AMS also intended for the
requirement to be flexible enough to
provide a framework that works for
differently situated businesses. To
ensure they are flexible yet effective
measures to promote accuracy in the
provision of disclosures to growers,
AMS included language in the rule
providing that the governance
framework should be ‘‘reasonably
designed’’ to audit the required
disclosures and ensure compliance with
obligations under the Act. Consistent
with other regulatory frameworks that
ask for forward-looking statements in
disclosures, such as the FTC’s Franchise
Rule and the Federal securities laws,
AMS also intended for forward-looking
projections to be subject to less stringent
standards of precision and verification
than past or present factual matters. For
example, the assumptions or beliefs that
form reasoned bases of the projections
need to be accurately disclosed,
reasonable, and then reasonably used to
make the projections.86 Also consistent
with the approach of other regulatory
regimes with respect to internal
controls, one goal of the governance
provisions is to ensure that live poultry
dealers adopt and follow processes that
are appropriately tailored to the scope
and nature of their operation.
However, AMS determined that the
requirement in proposed § 201.100(f)(2)
for the principal executive officer or
officers to certify the governance
framework and the accuracy of the
Disclosure Document adequately covers
the intended requirement for officers of
this level to be focused on the
effectiveness of the governance
framework. AMS concluded that the
level of detail in proposed
§ 201.100(f)(1)(i) about the Disclosure
Document audit process was not
necessary, particularly as AMS seeks to
balance the need to ensure reliability of
these statements with the burden on the
principal executive officers with respect
to particular details of the governance
process. Therefore, AMS removed from
the final rule the requirements proposed
in § 201.100(f)(1)(i) for principal
executive officers to audit, test, and
review an appropriate sampling of
Disclosure Documents. AMS
underscores that the accuracy of the
information disclosed (including the
reasonableness of the projections based
on the honest and accurately disclosed
assumptions) and the design and
86 See generally 15 U.S.C. 78u–5(c); 17 CFR
229.303.
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83249
compliance with the governance
framework (including the
reasonableness of its design and
compliance with it) remain fully
enforceable under the final rule. AMS
will also monitor implementation and
expects to examine governance
frameworks to assess their effectiveness
in delivering accuracy and reliability of
information to growers. In the event that
information is found to be inaccurate or
incomplete, AMS will investigate.
Violations may result in issuance of a
Notice of Violation or referral to the
Attorney General of the United States
for prosecution pursuant to Section 404
of the P&S Act, 7 U.S.C. 224. Growers
may also bring private cases in response
to inaccurate or misleading disclosures
under the Act or under other laws.
Other AMS Actions To Ensure
Completeness and Accuracy
Comment: State attorneys general
contended the proposed audit process
does not go far enough, stating that the
stipulation in proposed § 201.100(f) that
poultry processors establish a
governance framework might present a
problem by giving processors too much
control over the governance structure.
The State attorneys general
recommended mandating either
government or external auditor
involvement in a company’s audit and
testing program, saying this step would
increase the likelihood that the program
is rigorous and that the financial
disclosures provide useful and accurate
information to poultry growers. The
commenters also suggested
strengthening the language in proposed
§ 201.100(f) to provide clearer
requirements for governance systems
and increase live poultry dealer
accountability to USDA and to State
attorneys general for the initial years
after their implementation. Poultry
grower organizations urged AMS to be
more specific about the procedures it
will use to ensure the completeness and
accuracy of the disclosure data,
suggesting that the final rule should
include more details on the auditing
process to ensure accurate information
and prevent circumvention by live
poultry dealers. Commenters
recommended measures such as
specifying the minimum number of live
poultry dealer audits USDA will
conduct per year and requiring dealers
to submit Disclosure Documents
annually to PSD. Several commenters
also mentioned other resources that
might be a model for governance
actions. A poultry industry trade
association said AMS should simplify
and clarify the requirements for a
governance framework, including
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providing details on what ‘‘reasonably
designed’’ means and on how AMS will
inspect the disclosure and auditing
framework.
AMS response: In establishing a
governance framework, AMS sought to
balance rigor in internal controls and
audit systems so that growers receive
reliable information with flexibility in
design to accommodate compliance by
live poultry dealers with different scales
and types of operations. As discussed
above, AMS took note of the approach
of other regulatory frameworks 87 that
mandate disclosures and sought to tailor
approaches to compliance to the
particular circumstances of the poultry
markets and risks relating to these
markets. A ‘‘reasonably designed’’
framework depends on the particular
facts and circumstances of the poultry
company and its growers, with larger,
more complex processors adopting more
comprehensive systems appropriate to
the scope of their operations. AMS will
evaluate the effectiveness of the
governance framework in part through
examining how accurate and
comprehensive the disclosures are, and
may also examine a dealer’s internal
controls and other factors relevant to the
facts and circumstances of the dealer,
such as its recent track record of
compliance with relevant laws and
regulations.
AMS views the governance
framework as an essential element of
enforceability, as it will provide a
framework including an external audit
that will strengthen the accuracy of
internal processes. The governance
framework does not in any way absolve
the live poultry dealer of its obligations
to provide accurate disclosures to
comply with the rule’s requirements,
which are designed to correct deception
against growers. Rather, the governance
framework is intended to strengthen
those obligations upfront before a
disclosure failure occurs.
Governance frameworks, as a general
matter, are not novel. Publicly listed
companies—which several of the largest
live poultry dealers are—must already
maintain a range of internal controls
related to their audit and disclosure
functions.88 The reasons why public87 As noted above, AMS has looked to the
certification mandates set forth under the SarbanesOxley Act of 2002 (section 302) and the provisions
of the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 named after
former Federal Reserve chairman Paul Volcker,
commonly known as the Volcker Rule (section 619).
88 ‘‘Management’s Reports on Internal Control
Over Financial Reporting and Certification of
Disclosure in Exchange Act Periodic Reports,’’ SEC
Release No. 33–8238 (June 5, 2003) (‘‘SEC Final
Rule 2003,’’ which required disclosure of material
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facing companies must maintain
internal control regimes to ensure the
quality of their disclosures are similar to
why live poultry dealers that are subject
to this rule must maintain a governance
framework—to ensure that the
disclosures to growers are reliable.
AMS also intends to improve
compliance over time through
compliance reviews, industry training,
and other mechanisms, including
enforcement where necessary. Repeated
compliance violations may necessitate
proportionate agency enforcement and
deterrence actions. In most
circumstances, and as would expected
to be the case in the enforcement of
good faith compliance with this final
rule, AMS initially delivers a Notice of
Violation that provides the live poultry
dealer with the opportunity to engage
with AMS around the nature of the
violation and take compliance steps
necessary to cure the violation before
formal remedial actions are commenced.
AMS also has provided, in this final
rule and the associated form, additional
detail regarding the methods for
calculating certain disclosure data,
which we believe will enhance
completeness and accuracy of data.
AMS Collection of Disclosure Data
Comment: In response to AMS’s
request for comments on whether it
should collect disclosure data and how
it might use such data to enhance
compliance and monitor for potential
deceptive practices, poultry grower
groups and farmers unions expressed
support for data collection. The
commenters said this data would help
inform producers, lenders, and
regulatory authorities, given the
industry’s consolidation and geographic
monopolistic environments.
Commenters recommended AMS
require dealers to annually disclose the
data they are calculating and disclosing
within the Disclosure Document,
especially regarding grower incomes
and grower cost. The commenters also
suggested that USDA dedicate staff to
analyzing this data in the context of
industry consolidation and fair
competition to identify patterns early on
that may require corrective or
enforcement action.
AMS response: AMS agrees that datadriven approaches can be expected to
provide valuable information for
monitoring compliance with this rule
and with other rules under the Act.
AMS notes that it has the authority to
request Disclosure Document data under
existing requirements in the Act. AMS
weakness and other assessments in annual reports
for publicly traded securities).
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will further consider the extent to which
some Disclosure Document data may be
incorporated into annual report
requirements to AMS. Thus, there is no
need for this rule to contain a particular
requirement for submitting the data to
AMS. Therefore, AMS made no changes
to the rule as proposed based on these
comments.
Requirement of Dealers To Certify
Documents
Comment: Several poultry and meat
industry trade associations urged AMS
to omit the requirement for certification
by an executive officer. One commenter
argued that expecting this officer to be
in a position to certify the required
information is unreasonable because the
principal officer or officers of many
companies have responsibilities for
many areas in addition to live poultry
and contract with thousands of growers,
and because much of the information
produced in conjunction with a
Disclosure Document would be
maintained at the local poultry complex
level with multiple layers of
management between that level and the
‘‘principal executive.’’ Another
commenter said a poultry grower could
have recourse if an agreement made
deceptive statements regardless of
whether someone certifies the
information and that including this
requirement appears to be motivated by
an effort to establish individual liability
for what should be a commercial
contracting issue.
AMS response: AMS refers to the
response provided earlier on the
governance framework and the rationale
for chief executive officer (CEO)
certification. In multiple circumstances,
Congress and regulators saw it necessary
to enhance the accountability of senior
officers to achieve the goal of effective
and reliable disclosure and compliance
by larger companies for the benefit of
smaller, more diffuse market
participants. CEOs set the ‘‘tone at the
top,’’ which is critical for fostering a
culture of compliance at companies.89
Additionally, AMS already requires
signatures on required annual reports
(see 9 CFR 201.97), typically by the CEO
or another high-ranking official, creating
a precedent for the certification as
proposed. In addition, CEOs may rely
on sub-certifications by relevant officers
89 See, e.g., William C. Dudley, ‘‘Enhancing
Financial Stability by Improving Culture in the
Financial Services Industry,’’ Federal Reserve Bank
of New York, October 20, 2014, available at https://
www.newyorkfed.org/newsevents/speeches/2014/
dud141020a; Group of Thirty, ‘‘Banking Conduct
and Culture: A Call for Sustained and
Comprehensive Reform,’’ 2015, available at https://
group30.org/publications/detail/166.
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or senior officials, thus reducing the
burden CEOs may face while still
creating the appropriate level of
executive engagement to underscore the
importance of compliance and address
any issues early and effectively. AMS
agrees that recourse exists against live
poultry dealers for deceptive practices
under the Act and for violations of the
final rule regardless of the certification.
Violations may result in issuance of a
Notice of Violation or referral to the
Attorney General of the United States
for prosecution pursuant to Section 404
of the Act, 7 U.S.C. 224. Growers may
also bring private cases in response to
inaccurate or misleading disclosures or
bait-and-switch tactics under the Act or
under other laws. The purpose of the
governance framework and certification
requirement is to minimize the need to
rely on legal recourse in order to obtain
accurate, reliable disclosure, and thus to
enhance the reliability of the
information provided to growers at the
outset. Therefore, AMS made no
changes to the rule as proposed based
on these comments.
Requirement of Growers To Sign
Documents
Comment: Live poultry dealers noted
that there may be instances in which
obtaining a grower signature is not
possible, such as grower unavailability
or refusal to sign. These commenters
indicated it is appropriate to have other
means available for the live poultry
dealer to verify delivery of the
Disclosure Document to the grower in
these instances.
AMS response: AMS recognizes that
some growers may not sign the form
verifying that they received the
Disclosure Document, for reasons
unrelated to whether the live poultry
dealer made reasonable efforts to obtain
such signature. AMS intends to place
the requirement for disclosure and
delivery on the live poultry dealer, and
not on the grower. If the grower refuses
to sign the Disclosure Document, such
decision should not affect whether the
live poultry dealer has fulfilled its
obligations. Accordingly, in the final
rule, AMS revised the delivery
verification provision in § 201.102(g)(2)
to allow live poultry dealers engaged in
the production of broilers to obtain
alternative documentation to evidence
delivery and that best efforts were used
to obtain grower receipt. The rule does
not limit the mode of delivery, whether
by regular mail, certified mail,
registered mail, overnight mail, email,
facsimile, or personal service, provided
that the dealer obtains and maintains
evidence that the grower or prospective
grower received the Disclosure
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H. Contract Provisions on Variables
Controlled by Live Poultry Dealer
Current § 201.100(c) specifies the
contents of live poultry dealer contracts
with poultry growers. This subsection
requires dealers to specify the duration
of the contract and conditions for its
termination by each of the parties, all
terms relating to the poultry grower’s
payment, and information about a
performance improvement plan for the
grower, if one exists. In the proposed
rule, AMS proposed to redesignate
§ 201.100(c) as § 201.100(i) and amend it
to require dealers to specify the
minimum number of placements to be
delivered to the grower’s farm annually
in each year of the contract, as well as
the minimum stocking density of each
placement. In the final rule, the existing
requirements at § 201.100(c) are retained
for all live poultry dealers, while the
minimum placement and stocking
density requirements are at § 201.102(h)
and apply only to live poultry dealers
engaged in the production of broilers.
environment for poultry growers by
allowing growers to make decisions
based on minimum flock offerings
disclosed by different dealers. AMS
recognizes that dealers may wish to
adjust flock placements or density based
on external factors, and this rule does
not prevent such adjustments. The rule
also does not prohibit setting guaranteed
minimums that are lower than projected
placements to allow for such
adjustments. Indeed, should dealers
wish to indicate that the guaranteed
value is zero, this rule would not
prohibit such a disclosure, provided
that such disclosure is accurate and not
misleading. The purpose of this rule is
to provide the information that growers
need regarding flock placements and
density to enable them to make
decisions regarding their farm
operations and manage risks, and AMS
underscores the views of growers, farm
bureaus, and others that minimum flock
placements and stocking density are
valuable to growers. Minimum flock
placements are different from tentative
placements, in that they provide
growers with information well in
advance of the actual placements, which
aligns better with longer-term
obligations that farmers must make with
respect to borrowing and capital
investment, equipment investment,
labor contracts, and other longer-term
arrangements on the farm. Therefore,
AMS made no changes to the rule as
proposed based on these comments.
Utility of Proposed Requirements in
Addressing Need for Transparency
Comment: Several live poultry dealers
and industry groups expressed
opposition to the proposed
requirements to specify a minimum
number of flocks annually and a
minimum stocking density for each
flock. These commenters contended that
requiring these minimum values would
make it harder to adjust supply chains
for factors largely outside of the parties’
control, take away dealer flexibility to
adjust production plans as market
conditions change, and lead to
substantial costs associated with
changing existing contracts to
incorporate this requirement. A
commenter suggested that the
Disclosure Document provide tentative
projections regarding flock placements
rather than guaranteed minimums.
Conversely, growers and grower groups
expressed support for these guaranteed
minimums, saying they would allow for
more accurate and predictable income
projections.
AMS response: AMS intends for
disclosure of these guaranteed
minimums to improve the competitive
Alternative Approaches
Comment: Several non-profit
organizations said that AMS should
require disclosure of the maximum
amount of money that could be added
to or deducted from the contract’s stated
base price within the live poultry
dealer’s tournament ranking formula in
addition to the guaranteed minimum
placement number and stocking density
of flocks, saying this information would
be useful in allowing poultry growers to
better predict their income based on the
minimum flock placement and stocking
density guarantees.
AMS response: The poultry growing
arrangement will dictate maximum pay
variance to the extent it exists. Because
additions and deductions from base pay
are generally associated with deviations
from average performance, the range of
payments for individual settlements can
fluctuate. That is, to the extent that a
minimum and maximum exists, its
occurrence is rarely observed. For the
purposes of projection, the disclosure of
payment quintiles or mean and standard
deviation provided in § 201.102(d)
provides substantially more data points
useful to assess payment variance
Document in the required timeframe
and that best efforts were made to obtain
grower receipt. AMS expects that best
efforts will include personal
communications with the grower. The
revised provision requires live poultry
dealers engaged in the production of
broilers to document and certify in their
records that delivery occurred, as well
as by what method the delivery took
place.
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compared to maximum and minimum
pay terms, as quintiles show pay broken
down into five bands. Live poultry
dealers will only report a mean and
standard deviation if there are nine or
fewer growers. This reporting will
provide a measure of an expected
outcome and an expected volatility
around that outcome. The minimum
and maximum pay terms would not give
an expected outcome or volatility
measure. AMS acknowledges some
growers have expressed concerns about
excessive pay variability. As noted
above, AMS is considering rulemaking
for the purpose of more direct changes
to the poultry grower payment systems.
That is outside of the scope of this rule.
Therefore, AMS made no changes to the
rule as proposed based on these
comments.
Comment: A farm bureau suggested
AMS conduct additional rulemaking in
relation to stocking density to account
for changes in target weights after birds
have been placed, citing examples of
poultry growers who were stocked at an
appropriate density but lost significant
income after adjustments in bird pickup timing. This commenter and other
farm bureaus supported grower
compensation for loss of income when
target weights are modified after
placement.
AMS response: The issue raised by the
commenters is a concern in that the
growers relied on the contract terms
when entering the agreement and
subsequent revisions to target weights
result in financial losses that
presumably would not have occurred
under the original terms. The remedy
proposed by the commenters, however,
is not within the scope of this rule,
which is focused on increasing
transparency in live poultry dealer
communications with poultry growers.
If a live poultry dealer deceives a grower
through a ‘‘bait and switch’’ agreement
as described, remedies may exist
through enforcement by the USDA and
DOJ, or in private actions by the grower
in Federal court. AMS encourages
growers to report specific instances of
potential occurrences directly to AMS.
Growers may also file a complaint at
farmerfairness.gov or by calling 1–833–
DIAL–PSD (1–833–342–3773) if they
suspect a violation of the Act or any
other Federal law governing fair and
competitive marketing, including
contract growing, of livestock and
poultry. Therefore, AMS made no
changes to the rule as proposed based
on these comments.
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Other Comments About Contract
Provisions
I. Transparency Requirements for
Poultry Grower Ranking Systems
Comment: A poultry grower group
suggested AMS require live poultry
dealers to provide enough flocks to
allow poultry growers to pay their debts
and be profitable. The commenter also
suggested AMS require contracts with
growers to extend to the term of the
loan. Several farmers unions
recommended that AMS modify the
contract provisions to clearly state what
recourse poultry growers have under the
Act if live poultry dealers fail to meet
the contract terms. A farm bureau noted
that under the current contracting
system, companies promise profits to
entice growers into contracts that offer
little or no guarantee for success or
profit, and growers have limited clout to
negotiate for better contract terms or
treatment. This commenter explained
that grower contracts are typically flock
to flock with no commitments regarding
future flocks, number of birds per flock,
quality of birds placed, and feed
delivered, and that they allow
companies to cancel contracts at will.
Instead, the commenter contended that
contracts should last as long as the
commitment the grower has with their
financial institution. A poultry grower
also recommended that the proposed
rule require dealers to present contracts
that endure for the entirety of a grower’s
loan to give growers more security when
deciding to invest start-up capital and to
remedy issues that arise when a dealer
refuses to extend a contract unless a
grower makes certain modifications.
AMS response: AMS acknowledges
these concerns raised by growers. As
noted above, AMS is considering
rulemaking for the purpose of more
direct changes to the poultry grower
payment systems. AMS also welcomes
growers and others to contact us directly
regarding these matters. Growers may
file a complaint at farmerfairness.gov if
they suspect a violation of the Act or
any other Federal law governing fair and
competitive marketing, including
contract growing, of livestock and
poultry. However, these items are
outside the scope of this disclosurebased regime, which focuses on
increasing transparency in live poultry
dealer communications with poultry
growers, not on requiring contracts to
include specific guarantees or
establishing requirements related to
their duration. Therefore, AMS made no
changes to the rule as proposed based
on these comments.
AMS proposed to create a new
§ 201.214—Transparency in poultry
grower ranking pay systems
(§ 201.104—Disclosures for broiler
grower ranking system payments—in
this final rule) specifying the
recordkeeping and disclosure
requirements for live poultry dealers
using a poultry grower ranking system
to calculate grower payments.
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Recordkeeping and Maintenance
AMS proposed in § 201.214(a) to
require live poultry dealers who
calculate payments under poultry
grower ranking systems to produce and
maintain records showing how certain
inputs were distributed among
participants. In proposing these
recordkeeping and maintenance
requirements, AMS intended to ensure
that USDA or any other party with the
proper legal authority can collect
records for review during an
investigation or legal action. In the
proposed rule, AMS proposed to require
dealers to retain records relating to the
distribution of inputs to tournament
participants for 5 years. AMS invited
comments about whether this record
maintenance period is appropriate.
AMS also requested comments on the
burdens these recordkeeping
requirements create for dealers.
Comment: Groups representing
poultry growers expressed support for a
5-year retention period for records,
suggesting such record retention would
allow for a higher degree of
accountability and compliance
enforcement in disputes over unfair
distribution of inputs by live poultry
dealers. These commenters contended
burdens on dealers would be minimal,
as records would be maintained
electronically, and the industry already
provides much of the required
information to shared data collection
services. A live poultry dealer argued
that some information AMS proposed
for dealers to provide is sensitive and
proprietary, saying that, for example,
grower payments may provide
information about costs and live-side
operations; breeder information might
deal with strategic changes in breed or
efforts to deal with chick health; and
details about feed outages or other
internal operations might reveal
proprietary information that would
adversely and unfairly impact the live
poultry dealer’s competitive position.
AMS response: AMS agrees with the
poultry grower commenters and retains
5 years as the appropriate length of time
for record retention purposes for this
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rule. Although most regulations under
the Act provide for 2-year record
retention, 9 CFR 203.4(c) allows for an
extension of the record retention period
when investigations or proceedings are
underway. AMS is adopting a 5-year
retention requirement here principally
to enable PSD to enforce the disclosure
requirements that provide growers with
transparency into the past 5 years of
revenues, which enables growers to see
trends over time. To determine whether
the required disclosures are accurate or
not, PSD will need to be able to review
at least 5 years’ worth of records.
Regarding concerns about sensitive
proprietary information raised by a live
poultry dealer, proprietary information
such as poultry genetics, poultry feed
blends, trade secrets, or other
proprietary information not contained
in the grower contracts are not required
to be disclosed and may thus remain
restricted. Growers’ need for relevant
information with which to make
informed decisions weighs heavily in
favor of the disclosures specified in this
final rule because they relate to the
manner in which the poultry company
treats growers under its poultry growing
arrangements and enable broiler growers
to monitor some aspects of the live
poultry dealer’s performance under the
contracts. Moreover, the topics
contemplated for disclosures to
growers—such as grower compensation
and policies and procedures on matters
of interest to growers (sick chicks, feed
complaints, sale of farm policies, etc.)—
have limited proprietary value.
Accordingly, AMS made no changes
to the rule as proposed based on these
comments.
Placement Disclosure
AMS proposed in § 201.214(b) to
require live poultry dealers to provide
certain information about the flock
placed with the grower within 24 hours
of its placement on the grower’s farm.
This information would include the
flock’s stocking density, expressed as
the number of poultry per facility square
foot; the names and ratios of breeds of
the flocks delivered; the ratios of male
and female birds in the flock if the sex
of the poultry had been determined; the
breeder facility identifier; the breeder
flock age; information regarding any
known health impairments of the
breeder flock and of the poultry
delivered to the poultry grower; and
what, if any, adjustments live poultry
dealers will make to grower pay to
reflect any of these inputs. AMS
requested comments on how well the
proposed requirement to supply input
information at the time of placement
responds to grower requests for such
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information; whether the required
information is useful to a grower’s
operation; what burdens or challenges
dealers might encounter in collecting
information for placement disclosures;
and whether the placement disclosure
requirement would affect live poultry
dealers’ business practices.
Comment: Farm bureaus and groups
representing poultry growers supported
the requirement to supply input
information after placement, saying the
information is critical to poultry grower
performance. Several groups suggested
additional systems for complaints and
appeals are needed, saying poultry
growers often do not have a fair way to
report and resolve issues and that
transparency alone does not guard
against circumstances in which growers
consistently receive poor-quality inputs
or face repeated unfair treatment.90
AMS response: Mandating particular
systems for complaints and appeals
would not be within the scope of this
transparency rulemaking. However,
AMS agrees that poultry growers should
be aware of avenues for complaints and
appeals where they exist. Consistent
with AMS’s experience regulating the
poultry industry, commenter responses
have identified circumstances where
live poultry dealers commonly exercise
higher levels of discretion with respect
to the interaction between the dealers
and the growers. In such circumstances,
absent disclosures of policies and
procedures that may exist, broiler
growers are unable to understand and
evaluate how live poultry dealers may
handle those circumstances, which can
and do affect growers’ financial
outcomes under the poultry growing
arrangement. These circumstances—sick
chicks and disasters, feed issues, and
appeal procedures—were the subject of
questions on which AMS requested
comment in the proposed rule.
Therefore, AMS added a new provision
at § 201.102(c)(4) of the final rule
requiring live poultry dealers to disclose
policies and procedures on increased
layout time; sick, diseased, or high
early-mortality flocks; natural disasters;
weather events, or other events
adversely affecting the physical
infrastructure of the local complex or
the grower facility; other events
potentially resulting in massive
depopulation of flocks, affecting grower
payments; feed outages including outage
times; and grower complaints relating to
feed quality, formulation, or suitability,
as well as any appeal rights arising out
of these events.
In AMS’s experience fielding and
investigating grower complaints, some
live poultry dealers will remove sick,
diseased, and high early-mortality flocks
from the tournament settlement group
and provide payment calculated
separately. Similarly separate treatment
will sometimes be made for instances of
sick chicks, depopulation events,
natural disaster, weather events, or
other events affecting the physical
infrastructure of the local complex or
grower facility, as many live poultry
dealers provided for during the COVID–
19 pandemic or during the ongoing
series of avian bird flu outbreaks.91 92
However, these practices are not
uniform and are not necessarily
provided for in written contracts.93
How live poultry dealers respond to
feed outages, including outage times, as
well as to grower complaints relating to
feed quality, formulation, or suitability,
also vary widely, and commonly
depend to a high degree on the
approach that field agents for live
poultry dealers take in their particular
complex. AMS has received a range of
complaints over the years relating to
differential treatment between growers
within complexes relating to these
concerns. Live poultry dealers have
indicated in the past to AMS that they
provide growers the opportunity to
appeal the determinations or actions of
90 See, e.g., Campaign for Contract Agriculture,
Rural Advancement Foundation International—
USA, ‘‘Comment on AMS–FTPP–21–0044:
Transparency in Poultry Grower Contracting and
Tournaments’’ (received Aug. 23, 2022), available at
https://www.regulations.gov/comment/AMS-FTPP21-0044-0479; Institute for Agriculture & Trade
Policy, ‘‘Comment on AMS–FTPP–21–0044:
Transparency in Poultry Grower Contracting and
Tournaments’’ (received Aug. 1, 2022), available at
https://www.regulations.gov/comment/AMS-FTPP21-0044-0110; Stone Barns Center for Food &
Agriculture, ‘‘Comment on AMS–FTPP–21–0044:
Transparency in Poultry Grower Contracting and
Tournaments’’ (received Aug. 4, 2022), available at
https://www.regulations.gov/comment/AMS-FTPP21-0044-0139; Animal Welfare Institute, ‘‘Comment
on AMS–FTPP–21–0044: Transparency in Poultry
Grower Contracting and Tournaments’’ (received
Aug. 1, 2022), available at https://
www.regulations.gov/comment/AMS-FTPP-21-00440109.
91 A typical practice in such circumstances is to
pay growers based on their previous five flock
average to ameliorate losses. One such circumstance
is detailed in ‘‘What lessons can poultry producers
learn from extreme weather events? ’’
ThePoultrySite.com, March 02, 2022, available at
https://www.thepoultrysite.com/articles/whatlessons-can-poultry-producers-learn-from-extremeweather-events (last accessed April 2023).
92 AMS’s rule under § 201.102 (c)(3) would
require dealers to disclose to growers its policies
and procedures, as well as any appeal rights arising
from four types of important events, including
‘‘Natural disasters, weather events, or other events
adversely affecting the physical infrastructure of the
local complex or the grower facility.’’
93 A 2007 survey by USDA found that 17.9% of
broiler contracts included specific provisions for
catastrophic payments, see James MacDonald, ‘‘The
Economic Organization of U.S. Broiler Production,’’
USDA Economic Information Bulletin 38 (June
2008).
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local agents, but such availability has
not been consistent and is subject to a
high degree of opacity.
This rule provides up-front clarity for
growers on how the live poultry dealer
will deal with such circumstances. If
live poultry dealers choose not to
maintain such policies and procedures,
growers would benefit knowing this up
front during the contracting process.
However, this rule is focused on
providing transparency regarding the
policies and procedures that live
poultry dealers may have, whether
formal or in practice. Requiring
additional systems for complaints and
appeals was not proposed and would
not be a logical outgrowth of the
proposed rule. In future rulemaking,
AMS may consider additional steps to
address the maintenance of certain
policies or procedures.
Comment: Several organizations
suggested AMS require live poultry
dealers to disclose input quality
variables and feed discrepancies by
house on each poultry grower’s farm,
preventing live poultry dealers from
using averaging to hide variables and
discrepancies on settlement sheets. The
commenters said, with this addition, the
placement and settlement disclosure
requirements would give poultry
growers more transparency in accessing
information about their flocks, other
inputs, and their performance in the
context of their complex.
AMS response: Per-house disclosure
would represent a substantial increase
in recordkeeping burden. In addition,
this disclosure would likely provide
only a minor benefit, as metrics relating
to payment are required to be provided
to poultry growers on a farm-wide basis,
and facility-based input disclosures are
thus likely to create confusion among
growers. Accordingly, AMS is not
requiring disclosure at the house level.
Comment: Farmers unions and groups
representing poultry growers expressed
concern about variance in feed
delivered to grower farms. These
commenters urged AMS to require live
poultry dealers to disclose information
about the quantity and type of feed
delivered throughout the flock’s
growout. Commenters said live poultry
dealer errors in the type or amount of
feed delivered, even with no feed
disruption, can have significant
ramifications for flock performance.
AMS response: As discussed above,
AMS recognizes the need to provide
transparency to address risks of
deception in circumstances where
dealer discretion, opacity, and other
information asymmetries are present in
the poultry growing arrangement. As
highlighted by the comments, growers
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have repeatedly expressed concerns
regarding feed quality and type, as well
as delivery and disruption thereof.
Section 201.102(c)(4)(v) and (vi) of the
final rule requires disclosure of dealer
policies and procedures relating to feed
outages, including outage times, and
grower complaints about feed quality,
formulation, or suitability. Required
disclosures also include policies and
procedures around any appeals
processes on such matters.
AMS considered an option to require
live poultry dealers to disclose the feed
mix, or recipe, to growers, but
determined this option is not
appropriate because the feed mix varies
at different stages of the growout and it
is a closely protected formula, treated as
proprietary information by live poultry
dealers. Also, AMS determined that
providing additional disclosures about
feed delivered throughout a flock’s
growout would involve overwhelming
complexity, particularly due to the
dynamic nature of feed contents and
quantities within a given growout
period. Moreover, these disclosures
would have limited usefulness.
AMS acknowledges these
commenters’ concerns about
transparency and responsiveness
regarding feed quality and delivery
issues and that particular instances of
concern may arise but concludes that
the potential benefits of the requested
disclosures would not justify the costs.
Ongoing disclosure of the actual feed
mix and delivery, as noted above
however, may be too burdensome given
the proprietary and fluid set of practices
that live poultry dealers use in
providing feed. It may also be
overbroad, as a focus on policies and
procedures will provide information
that growers need to better manage the
specific risks they encounter, while
providing greater flexibility for live
poultry dealers to develop the systems
that work best for their company and
their growers. AMS will continue to
monitor these areas and expects to use
the additional transparency provided by
the disclosures to develop more tailored
educational, outreach, or regulatory
responses.
Comment: Several poultry industry
representatives requested that AMS
clarify what constitutes a health
impairment requiring disclosure. A
commenter said it is unclear whether
AMS intended the provision requiring
disclosure of health impairments to
encompass impairments other than
recognized and diagnosed poultry
diseases, while another said the current
proposal is vague enough to leave
significant room for legal disputes over
whether a condition affected a grower’s
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compensation. Several animal welfare
groups said AMS should strengthen the
disclosure requirements related to
health issues. A commenter said
integrators should have to disclose
known health impairments at least 24
hours before the flock is placed with the
grower, rather than within 24 hours of
placement, because earlier notice would
give the grower more time to prepare
and would ensure a fairer marketplace.
This commenter also suggested
requiring integrators to track disease
and to inform other poultry growers
with birds from the same facility of
problems with birds from a particular
breeding facility or hatchery, so the
entire affected community of poultry
growers will be better prepared for
disease outbreaks. Other commenters
suggested that AMS require additional
health-related disclosures, including
any known health issues present in the
flock being delivered, such as
infections, and any past veterinary care
rendered to the chicks, saying these
extra disclosures would better allow
them to provide suitable veterinary care
and may lead to better growth outcomes
and fewer deaths.
AMS response: AMS concluded that
disclosure of known health impairments
is the appropriate standard, and ‘‘health
impairments’’ as generally understood
provides an appropriate context for
classification. AMS does not believe it
is appropriate to limit the standard, as
flock health impairments affect certain
flocks, breeds, and growouts differently.
Health impairments may affect growout
management, performance, pay, or other
relevant factors. Often, specific input
deliveries may not be decided 24 hours
in advance, as logistics, weather,
transportation, and other factors may
influence distribution. Therefore, AMS
made no changes to the rule as proposed
based on these comments.
Comment: Multiple farmers unions
and groups representing poultry growers
said live poultry dealers should disclose
a breeder flock identifier in addition to
a breeder facility identifier. A
commenter said growers could use this
data to support an appeal if they are
punished for poor growth after receiving
a diseased or lower-quality flock and to
obtain the breeder’s flock-breeding
methods.
AMS response: AMS acknowledges
the commenters’ interest in the
disclosure of breeder flock identifiers.
However, it concluded that this
additional information is not needed
because individual breeder facilities are
generally populated and depopulated all
in and all out. Breeder facility
identifiers would thus reflect the same
information in breeder flock identifiers.
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Therefore, AMS made no changes to the
rule as proposed based on these
comments.
Comment: Numerous non-profit
organizations requested that AMS
require live poultry dealers to provide
historical breed performance and best
management practice recommendations
disaggregated according to important
factors, such as breeder flock age and
flock pickup date, and to keep this data
archived for 10 years.
AMS response: Virtually all live
poultry dealers provide manuals to
growers outlining best management
practices. In addition, historical
performance is currently publicly
available on breeder internet sites.
Given the widespread availability of this
information, AMS made no changes to
the rule as proposed based on these
comments. AMS may reevaluate in the
event that industry practices shift away
from voluntarily providing this
information.
Comment: Several non-profit
organizations said AMS should require
live poultry dealers to disclose data
about the optimal pickup age for a
flock’s breed on flock placement sheets.
Some of these commenters also
suggested AMS should require
integrators to disclose the average feed
conversion efficiency of flocks hatched
from breeder flocks of that age in
addition to requiring disclosure of
breeder flock age on delivery. The
commenters said this requirement
would allow poultry growers to
compare their own performance to a
more accurate flock efficiency
performance expectation.
AMS response: Weight, not number of
days, is the target for bird harvest and
is generally included in most
settlements. As target weight is readily
known to poultry growers, along with
the average number of days to achieve
the target, it is unnecessary to require
this readily known information in the
Disclosure Document. Accordingly,
AMS is not requiring live poultry
dealers to provide information related to
the optimal pickup age for a flock’s
breed. While AMS is considering action
targeting live poultry dealers who allow
birds to stay in houses beyond their
target weight, that falls outside the
scope of this disclosure-based regime.
AMS further notes the commenters’
views regarding the value of
benchmarking performance but is not
prepared at this time to adopt such a
requirement in this rule. AMS also notes
that USDA makes available a range of
resources, in particular Extension
expertise, to assist growers in better
analyzing their performance utilizing
different inputs, and notes the inclusion
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of contact information for USDA
resources in the final rule.94 AMS will
monitor implementation and may
examine additional tools for assisting
growers in improving their performance.
Comment: Commenters representing
the poultry industry said the
information to be required on flock
placement would burden live poultry
dealers and is unnecessary because of a
lack of evidence showing it would help
poultry growers in managing their
farms. Commenters also said providing
stocking density information is not
necessary because live poultry dealers
will place flocks at the optimal density
for the best return.
AMS response: Broiler growers, farm
bureaus, and many other commenters
widely supported flock placement
disclosures because these disclosures
assist growers in planning and operating
their farms, managing their financial
risks, and negotiating with live poultry
dealers over better contractual
execution, among other reasons. AMS
has concluded that, for live poultry
dealers engaging in the production of
broilers, the burden of providing the
flock placement disclosures, including
disclosures on stocking density, would
be minimal and the benefit to broiler
growers substantially outweighs the
impact to dealers. Further, dealer
decisions on stocking density may also
be influenced by other factors beyond
optimal returns to growers, such as
responses to market changes, which
mitigates in favor of providing
additional transparency by live poultry
dealers, the entities responsible for
making those decisions.
Comment: Several poultry and meat
trade associations said live poultry
dealers sourcing birds from a third party
may not have access to some data the
proposed rule would require them to
disclose with placement, such as
breeder flock age. Commenters also
mentioned that third-party breeder
operations might consider sourcing
information to be proprietary or subject
to a nondisclosure agreement,
suggesting AMS address how live
poultry dealers should make placement
disclosures when they do not have
required information or when law or
contract prohibits them from providing
it.
94 See, e.g., Jennifer Rhodes, Extension Educator,
et al, University of Maryland, ‘‘Broiler Product
Management for Potential and Existing Grower,’’
Table 1 and 2, available at Poultry Budgets,
Enterprise Budgets, Agricultural and Resource
Economics, North Carolina State University
Extension, https://cals.ncsu.edu/are-extension/
business-planning-and-operations/enterprisebudgets/poultry-budgets/ (last accessed April 2023).
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AMS response: Based on AMS
experience, under most poultry growing
arrangement contracts, live poultry
dealers are responsible for providing the
birds to the growers. Live poultry
dealers may also be expected to already
have State contract law obligations
relating to their performance under the
contract. Based on AMS’s experience,
dealers sourcing chicks from third
parties already monitor the inputs
provided by those parties. Growers need
to know the information being required
in this rule, such as the breeder flock
age and known health impairments of
the breeder flock, and the live poultry
dealer, not the grower, is best
positioned—indeed, is the only party
positioned—to require, via contract, that
the third-party provide the information
necessary to comply with the rule. Nor
are the obligations especially
burdensome. For example, regarding
health impairments, AMS is requiring
only disclosure of ‘‘known health
impairments’’ of the breeder flock or of
the poultry delivered, and the live
poultry dealer has a range of ways to ask
the third-party input supplier to provide
that information, including contractual
guarantees, indemnifications,
attestations, or other means all of which
are already commonly used in livestock
transactions to ensure animal health and
food safety.
Whether the live poultry dealer is
sourcing the inputs internally or via a
contractual arrangement with a third
party, it is ultimately the live poultry
dealer that is providing the inputs to the
grower under the poultry growing
arrangement and is responsible for not
engaging in a deceptive practice. AMS
has discussed in other parts of this final
rule why the information being
requested about the inputs is not
confidential or proprietary. Therefore,
AMS made no changes to the rule as
proposed based on these comments.
Comment: Several industry groups
opposed the requirement proposed in
§ 201.214(b)(7) to disclose any
adjustments the live poultry dealer
intends to make due to the other factors
covered in placement disclosures. One
commenter said live poultry dealers
would not be able to disclose
adjustments at the beginning of a flock
because it is impossible to predict the
financial impact of factors that may
affect live birds in advance. This
commenter said it is more appropriate
for live poultry dealers to make pay
adjustments after a flock settles based
on comparisons with historical data.
AMS response: Some live poultry
dealers may be unable to predict the
exact financial impact of those factors in
any specific flock delivery to a grower,
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but these are contracted-for payments
that should be legitimately based upon
factors known to both parties.
Otherwise, the live poultry dealer may
deceptively manipulate the contract
payments based on withheld
information because the live poultry
dealer controls all the tools used to
calculate payments. Of course, live
poultry dealers may be able to predict
some of the financial consequences of a
contract, or the live poultry dealer may
want to create additional grower
incentives specific to one flock that may
take the form of a pay adjustment. In
AMS’s experience reviewing contracts,
payment formulas can be complicated.
However, AMS included the
requirement to disclose any adjustments
that may be made based on the factor in
the settlement disclosure to help
growers to recognize and manage risks,
and to prevent adjustments that were
opaque or pose risks of deception to the
grower.
The rule does not require any
adjustments, and only requires live
poultry dealers to disclose adjustments
that can be known prior to placement
and that the live poultry dealer could
apply, for example a particular
adjustment formula, process, or
approach. The specific final amount of
adjustment need not be predicted, but if
the live poultry dealer knows that the
inputs will likely result in payment
being adjusted upward or downward in
an unknown amount, and particularly if
it knows how or under what conditions
that will occur, it should disclose that
information to a grower to allow the
grower to better manage their growout
strategies; plan for the payment they are
expecting to receive upon settlement;
and avoid being confused, misled, or
otherwise deceived about how their
performance under the contract will be
compensated. Live poultry dealers
remain free to make the actual
contractually agreed upon adjustments
after settlement based on flock
performance. Therefore, AMS made no
changes to the rule as proposed based
on these comments.
Comment: Groups representing
poultry growers supported the proposed
placement disclosure requirements.
These commenters said the
requirements would ensure more
transparency by integrators and help
growers in areas such as flock
management and financial planning. A
live poultry dealer said much of the
proposed placement disclosure
information pertains to factors that do
not vary significantly from grower to
grower, saying any natural variation in
inputs is expected to even out over time
and providing the information would
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place undue emphasis on single inputs
rather than factors such as the grower’s
skill, dedication, and hard work.
AMS response: Input variation has not
been the subject of external study
because of the proprietary nature of the
data available, but it has been the source
of repeated concerns raised by growers
for many years.95 The persistence of
these grower complaints suggests that
making this information available to
growers to measure, monitor, and adjust
as they may see fit is worth the modest
cost to live poultry dealers because it
will reduce the opacity and risks of
deception with respect to their
payments. With that additional
transparency, growers will be able to
determine the relative emphasis to be
placed on single inputs versus other
factors, such as skill, dedication, or hard
work, which may help them adjust their
growout practices to match. To the
extent variations do even out over time,
growers will be in a better position to
recognize those trends and make their
own determinations on the importance
of inputs versus other factors, thanks to
this rule’s enhancement of transparency
tools. If input factors do not in fact vary
significantly from grower to grower, the
burden of disclosure by the live poultry
dealer remains relatively light.
Comment: Industry groups contended
the placement disclosure requirements
would impose a significant
administrative burden, such as requiring
capital investments to overhaul their
software to provide the required data.
One commenter said the discussion of
input distributions in the preamble to
the proposed rule relied on anecdotal
reports rather than actual data or
evidence, making the proposed
provisions arbitrary and capricious.
AMS response: AMS has conducted
an extensive cost-benefit analysis for
this rule, available under the regulatory
analyses section below, and believes
that the burden of compliance is
relatively modest. AMS investigations
and reviews of information sharing
services and consultations with experts
from the Agricultural Research Service,
in addition to AMS’s own subject matter
experts, supervisors, and auditors with
many years of experience in working
with growers and auditing live poultry
dealers all indicated that most live
poultry dealers maintain this
information already, and indeed report
much of it to information sharing
services.
95 See, e.g., Transcript, United States Department
of Justice, United States Department of Agriculture,
Public Workshops Exploring Competition in
Agriculture: Poultry Workshop, May 21, 2010,
Normal, Alabama; Leonard, Christopher, The Meat
Racket (2014).
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AMS acknowledges that external
analyses of poultry inputs generally lack
a ranking system context, but the
proprietary nature of the relevant data
makes quantitative academic and other
external analysis nearly impossible.
Even with the lack of context, peer
reviewed research supports the
supposition that input differentiation
can affect biological outcomes.96 AMS is
relying on the longstanding concerns of
growers and its own experience as the
industry’s regulator to warrant
placement disclosure requirements.
Accordingly, AMS made no changes to
the proposed rule based on these
comments.
Settlement Document Information on
Tournament Group
In the proposed rule, AMS proposed
to retain existing regulatory
requirements in § 201.100(f) to provide
settlement sheets but to move the
provision to § 201.214(c). It also
proposed to require live poultry dealers
employing poultry grower ranking
systems to provide every grower within
the system with settlement documents
that show certain information about
each grower’s ranking within the
system, housing specifications, and the
inputs each poultry grower received.
AMS invited comments on how well the
requirement to provide input
distribution information, along with
settlement payment information, for all
members of the tournament group
responds to grower requests to improve
transparency, address information
asymmetry, and reduce the chance of
deception in the tournament payment
system.
96 E. David Peebles, et al., ‘‘Effects of Breeder Age
and Dietary Fat on Subsequent Broiler Performance.
1. Growth, Mortality, and Feed Conversion.’’
Poultry Science 78.4 (1999): 505–51; J.B. O’Neill,
‘‘Relationship of Chick Size to Egg Size and its
Effect Upon Growth and Mortality.’’ Poultry Science
29 (1950):774; C.L. Wyatt, W.D. Weaver Jr, and W.
L. Beane, ‘‘Influence of Egg Size, Eggshell Quality,
and Posthatch Holding Time on Broiler
Performance.’’ Poultry Science 64.11 (1985): 2049–
2055; R.A. Guill and K.W. Washburn, ‘‘Genetic
Changes in Efficiency of Feed Utilization of Chicks
Maintaining Body Weight Constant.’’ Poultry
Science 53.3 (1974): 1146–1154; R.G. Wells, and C.
G. Belyawin, ‘‘Egg Quality-Current Problems and
Recent Advances.’’ Poultry Science Symposium
Series. No. 636.513 W4. 1987(citing D. Spackman,
‘‘The Effects of Disease on Egg Quality’’); W.A.
Dozier III, et al., ‘‘Effects of Early Skip-A-Day Feed
Removal on Broiler Live Performance and Carcass
Yield.’’ Journal of Applied Poultry Research 11.3
(2002): 297–303. AMS notes additionally that
research in this and related areas has limitations.
It is older and results are mixed. AMS is concerned
that publically available research has stagnated,
despite the introduction of new breed strains in the
intervening years. Because integrators now own the
genetics companies, AMS has additional concerns
that research has, in effect, been privatized, creating
information asymmeteries.
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Comment: Groups representing
poultry growers, in general, expressed
support for the proposed settlement
disclosure requirements. Commenters
noted these disclosures would help
growers determine if they are being
treated fairly compared to other growers
in their complex and enable them to
establish cases based on unfair
treatment or retaliation claims. Several
commenters advocated for further
rulemaking to reform the tournament
system, saying the proposed settlement
sheet disclosures do not sufficiently
mitigate several anticompetitive factors
and unfair practices. Commenters said
the current rule does not account for
factors such as tournament group
composition effects and recommended
that the disclosure requirements for
settlements apply to any poultry
contract in which the integratorcontrolled factors may impact the
baseline or bonus income of the contract
grower. These commenters suggested
AMS require live poultry dealers to
disclose input quality variables and feed
discrepancies by house on each grower’s
farm to reflect circumstances in which
flock drop-off or pick-up for a grower is
split over a weekend, introducing
variables in bird performance. AMS
received few comments that specifically
opposed making available to growers
information about tournament grouping
and composition. AMS has summarized
above and below any comments that
oppose proposed required disclosures,
e.g.,: that the disclosures would
unnecessarily increase the dealer’s
costs.
AMS response: AMS acknowledges
the commenters’ interest in input
quality variables and feed discrepancies,
as well as the timing of flock drop-off or
pick-up. In response to comments, and
based on AMS’s experience regulating
the poultry industry, AMS has
identified circumstances where live
poultry dealers commonly exercise
higher levels of discretion. In these
circumstances, broiler growers are
unable to evaluate how live poultry
dealers may handle those circumstances
and, as such, are exposed to risks of
deception with respect to the operation
of their contract and payment.
Commenters asked for specific
disclosures regarding sick, diseased, or
high early mortality flocks; natural
disasters; depopulation events; feed
outages; and feed quality, formulation,
and suitability.97
97 See,
e.g., Animal Welfare Institute, ‘‘Comment
on AMS–FTPP–21–0044: Transparency in Poultry
Grower Contracting and Tournaments’’ (received
Aug. 1, 2022), available at https://
www.regulations.gov/comment/AMS-FTPP-21-00440109; Campaign for Contract Agriculture, Rural
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In this final rule, AMS requires
additional disclosure regarding policies
and procedures relating to layout time;
sick, diseased, and high early-mortality
flocks; natural disasters, weather events,
or other events adversely affecting the
physical infrastructure of the local
complex or grower facility; other events
potentially resulting in massive
depopulation of flocks, affecting grower
payments; feed outages, including
outage times; and grower complaints
relating to feed quality, formulation, or
suitability. AMS believes that focusing
on disclosure of the live poultry dealer’s
policies and procedures—if any—in
these areas will provide the appropriate
flexibility for live poultry dealers to
develop systems that work best for their
company and their growers, while also
providing growers with the additional
information they may need to better
manage risks relating to those matters.
AMS determined that specific
disclosures would not be suitable to
addressing these risks because the
burden on live poultry dealers would be
great, and the benefit of these
disclosures would be insufficient. In
part, many of these situations occur
from time to time and depend upon
discretion by the live poultry dealer and
its field agents. Because ongoing
disclosure would likely be insufficient
to provide growers the advance notice of
how live poultry dealers intend to
handle such circumstances, AMS has
determined that disclosure of policies
and procedures is the most suitable and
effective way to provide growers with
transparency regarding these situations
and risks arising from them. Such an
approach is consistent with the
approach to disclosure that AMS is
taking, and proposed to take, in other
areas that may depend on a degree of
circumstance-specific discretion—for
example, sale-of-farm policies.
AMS will continue to monitor these
areas and expects to use the additional
transparency provided by the
disclosures to develop more tailored
educational, outreach, or regulatory
responses. AMS also notes the
commenters’ interest in additional
Advancement Foundation International—USA,
‘‘Comment on AMS–FTPP–21–0044: Transparency
in Poultry Grower Contracting and Tournaments’’
(received Aug. 23, 2022), available at https://
www.regulations.gov/comment/AMS-FTPP-21-00440479; Institute for Agriculture & Trade Policy,
‘‘Comment on AMS–FTPP–21–0044: Transparency
in Poultry Grower Contracting and Tournaments’’
(received Aug. 1, 2022), available at https://
www.regulations.gov/comment/AMS-FTPP-21-00440110; Stone Barns Center for Food & Agriculture,
‘‘Comment on AMS–FTPP–21–0044: Transparency
in Poultry Grower Contracting and Tournaments’’
(received Aug. 4, 2022), available at https://
www.regulations.gov/comment/AMS-FTPP-21-00440139.
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rulemaking with respect to fairness
concerns relating to tournament systems
and highlights that it has put forth an
Advance Notice of Proposed
Rulemaking focused on those issues.98
Comment: AMS requested comment
on whether the proposed requirement in
§ 201.214(c) (§ 201.104(c)(1) in the final
rule) to include the housing
specification for each poultry grower
ranking system participant on grouping
or ranking sheets responds to grower
requests to improve transparency,
address information asymmetry, and
reduce the chance of deception in the
tournament payment system. Groups
representing poultry growers expressed
support for this proposed requirement,
saying it would improve growers’ ability
to assess the relative performance and
income gains that more modern
infrastructure may provide.
AMS response: In addition to helping
growers assess the value of making
housing upgrades, dealers may benefit
from making such disclosures when
they can demonstrate for growers a
correlation between more advanced
housing tiers and improved flock
performance, inducing more grower
advancement. Accordingly, we have
retained the requirement in § 201.104(c)
to provide these disclosures.
Comment: Several commenters said
the proposed settlement disclosures
would help poultry growers evaluate or
improve their performance, make
informed business decisions, or mitigate
risks. For example, these commenters
said the information would help
growers to better understand their
placement in the tournament and could
change industry bargaining dynamics.
However, many commenters said the
disclosures do not go far enough in
giving poultry growers meaningful tools
to address fundamental power
imbalances, hampering poultry growers’
ability to meaningfully negotiate
contracts with live poultry dealers and
minimize dealer opportunities to
manipulate rankings within a group.
AMS response: AMS has designed
this final rule to enhance transparency
for broiler chicken growers because of
the deception that arises from welldocumented information asymmetries
and attendant risks in the design and
operation of poultry grower ranking
systems. Transparency, as provided by
this rule, will prevent deception,
encourage live poultry dealers to offer
98 Agricultural Marketing Service, ‘‘Poultry
Growing Tournament Systems: Fairness and
Related Concerns,’’ Request for Comments (87 FR
34814, June 8, 2022), available at https://
www.federalregister.gov/documents/2022/06/08/
2022-11998/poultry-growing-tournament-systemsfairness-and-related-concerns.
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better contracts, and enhance growers’
ability to understand contracts and the
grower-dealer relationship.
Transparency will also prevent live
poultry dealers from engaging in certain
forms of deception in the operation of
those contracts. AMS also expects
increased transparency to function as a
deterrent by exposing abusive conduct
by market participants. Transparency
also creates reputational disincentivizes
to such actions as well. Disclosure
regimes in other areas, such as the FTC’s
Franchise Rule, as well as the longestablished operation of the Federal
securities laws, show that disclosure is
a cost-effective tool to prevent
deception, improve trust among market
participants, and mitigate market failure
and the potential for market failure.
Disclosure laws are common in
financial, housing, and other markets
where the products are complex, the
financial risks are significant, and one
party has significantly more information
than the other.99 Additionally, AMS’s
experience in the poultry sector and
agriculture in general shows that
producers value transparency as a tool
for enhancing their ability to contract
and manage risks.
AMS recognizes, however, that
transparency may not be sufficient to
address all the risks that growers may
face, in part because transparency does
not inherently prohibit harmful
practices that growers may be unable to
avoid owing to lack of competition (i.e.,
lack of other options for poultry dealers
with whom to do business), deception,
or other reasons.100 Accordingly, AMS
has proposed other rules seeking to
prevent retaliation for joining an
association or forming a cooperative,
among other protections against
discrimination, retaliation, and
deception. AMS has also published an
Advance Notice of Proposed
Rulemaking regarding additional rules
to address fairness concerns relating to
tournament systems.101 AMS is
committed to continuing to improve the
integrity, fairness, and competitiveness
of the poultry growing marketplace
99 D.W. Carlton and J.M. Perloff, Modern
Industrial Organization (1994): 624. Paula J. Dalley,
‘‘The Use and Misuse of Disclosure as a Regulatory
System,’’ 34 Fla. St. U.L. Rev. 1121–22 (2007).
https://ir.law.fsu.edu/lr/vol34/iss4/2.
100 Federal Trade Commission Chair Lina M.
Khan, ‘‘Poultry Growing Tournament Systems:
Fairness and Related Concerns’’ (received Sept. 1,
2022), available at https://www.regulations.gov/
comment/AMS-FTPP-22-0046-0143.
101 Agricultural Marketing Service, ‘‘Poultry
Growing Tournament Systems: Fairness and
Related Concerns,’’ Request for Comments (87 FR
34814, June 8, 2022), available at https://
www.federalregister.gov/documents/2022/06/08/
2022-11998/poultry-growing-tournament-systemsfairness-and-related-concerns.
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through additional rules and through
the enforcement of existing laws and
regulations, as well as through a range
of other strategies, such as $1 billion in
direct investments in expanded meat
and poultry processing capacity that
USDA is implementing to promote
competition across agriculture.102
Comment: AMS requested comment
on whether there is other information or
another way of presenting the proposed
settlement information that would be
better. Several groups representing
poultry growers said the proposed
disclosure requirements are helpful but
incomplete and recommended requiring
live poultry dealers to disclose other
factors that impact grower settlement
performance. Commenters suggested
AMS require dealers to document and
disclose the quality of the feed provided
to the growers in the settlement group
because feed quality can significantly
affect the ranking if a live poultry dealer
provides lower quality feed to one
poultry grower within a settlement
group. Commenters urged AMS to
require integrators to disclose the
average feed conversion efficiency of
flocks hatched from breeder flocks of
that age to enable growers to compare
their own performance to a more
accurate flock efficiency performance
expectation. Commenters also suggested
that AMS require live poultry dealers to
disclose the flock age at pickup because
when integrators pick up flocks before
or after the ideal pick-up time range,
growers are penalized due to the flock’s
less optimal weight or feed conversion
efficiency metrics. Commenters also
recommended disclosure of all appeals,
summaries of their resolution, and any
extended delay during poultry delivery
or collection that results in the
remaining flock members losing body
weight, being placed back on feed, or
being delivered or collected with a
different payment settlement group at a
later date.103
Industry groups expressed concerns
regarding proposed requirements to
102 U.S. Department of Agriculture, Agricultural
Marketing Service. (May 2022). Agricultural
Competition: A Plan in Support of Fair and
Competitive Markets: USDA’S REPORT TO THE
WHITE HOUSE COMPETITION COUNCIL.
Retrieved from Agricultural Competition: A Plan in
Support of Fair and Competitive Markets
(usda.gov).
103 Campaign for Contract Agriculture, Rural
Advancement Foundation International—USA,
‘‘Comment on AMS–FTPP–21–0044: Transparency
in Poultry Grower Contracting and Tournaments’’
(received Aug. 4, 2022), available at https://
www.regulations.gov/comment/AMS-FTPP-21-00440479, and Virginia Farm Bureau Federation, ‘‘VFBF
Comments—AMS Poultry Disclosure Proposed
Rule’’ (received Aug. 5, 2022), available at https://
www.regulations.gov/comment/AMS-FTPP-21-00440160.
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report feed disruptions, suggesting AMS
clarify what constitutes a disruption.
These commenters noted the proposed
rule does not address situations, such as
outages caused by natural disasters or
other events out of either party’s control
that may affect all participants in the
settlement pool. An industry group also
said omitting the requirement to
disclose breeder flock information
would reduce costs and administrative
burden on live poultry dealers and
reduce confusion among poultry
growers. This commenter also noted live
poultry dealers already provide the
information used to calculate a grower’s
payment under the contract; therefore,
the additional information is
unnecessary and would be confusing to
growers. The commenter also asked
AMS to clarify how to address
situations in which the live poultry
dealer has determined the sex of the
birds for some, but not all, growers in
the settlement pool.
AMS response: Paragraphs
201.102(c)(4)(v) and (vi) of the final rule
require disclosure of integrator policies
and procedures relating to feed outages,
including outage times, and grower
complaints about feed quality,
formulation, or suitability. AMS intends
these provisions to be broadly construed
to include situations caused by natural
disasters as well as other miscellaneous
situations. While AMS acknowledges
the requests to omit breeder flock
information, it recognizes that many
growers have expressed concern about
and need for this information. Growers
will benefit from its inclusion in the
required settlement disclosures because
academic research indicates that
different breeder flocks may perform
differently.104 This is particularly
important information to growers settled
under a tournament payment system,
where small differences in outcomes
can have an outsized effect on grower
payments because growers are
compared on a relative rather than
objective basis. Integrators are in
possession of this information because
they acquire and deliver the chicks to
growers, and engage in extensive
research and development to improve
performance of the breeds. Absent the
provision of this information, growers
are subject to deception because their
ability to perform under the tournament
may be adversely affected by differences
in these inputs between growers and by
the inability to know and adjust to those
differences at the earliest possible
104 E. David Peebles, et al. ‘‘Effects of Breeder Age
and Dietary Fat on Subsequent Broiler Performance.
1. Growth, Mortality, and Feed Conversion.’’
Poultry Science 78.4 (1999): 505–511.
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moment, to the extent such adjustment
is possible. Therefore, AMS is retaining
this requirement in the final rule.
Paragraph 201.104(b)(3) requires that
‘‘[i]f the live poultry dealer has
determined the sex of the birds, all
ratios of male and female poultry
delivered’’ must be disclosed. AMS does
not require that the live poultry dealer
disclose the sex of all birds delivered
because AMS understands that industry
practice varies on sexing, and not all
birds are sexed before delivery.
However, AMS maintains the
requirement that where a live poultry
dealer does engage in some collection of
information regarding the sex of the
birds, that the integrator must disclose
that information to growers as it is
helpful to growers.
AMS would accept the live poultry
dealer using ratios and percentages to
describe bird sex in relation to a flock.
AMS did not provide further
clarification beyond this explication
because of the potential variation in
practice, and because AMS believes that
the language ‘‘all ratios’’ provides an
appropriately inclusive coverage of the
information that the live poultry dealer
may collect, and which should be
disclosed to growers in those
circumstances. AMS will be making
available guidance documents during
the implementation phase to answer
live poultry dealer and grower
questions, and intends to implement the
rule in a careful, iterative manner.
AMS acknowledges commenters’
concerns that flock pick-up timing (and
hence age) may affect grower outcomes.
Flock age is often disclosed under
existing § 201.100(f) to the extent that
daily averages are used in formulas to
calculate payments. To appropriately
balance the burdens on live poultry
dealers, AMS is not adopting specific
disclosures, beyond those that exist in
§ 201.100(f) on that topic at this time.
Comment: AMS requested
information about obstacles to sharing
or discussing settlement information
with others and on whether the right to
discuss the terms of poultry growing
arrangement offers should apply to
these disclosures. Groups representing
poultry growers said they appreciate the
proposed rule’s extension of the existing
right to discuss the terms of growing
arrangement offers with other growers
from the same dealer to include the
right to discuss the Disclosure
Document. However, they believe
growers should also have the right to
discuss the settlement sheet disclosures
proposed under § 201.214, and that
AMS should clarify that the current
right to discuss the poultry growing
arrangement encompasses this right.
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AMS response: The settlement sheet
disclosures in § 201.104 will be
provided to the entire pool of growers
settled during the same time period.
Only the growers’ personal identifying
information may be excluded from the
settlement sheet documents, as the rule
specifically provides that the
disclosures need not show the names of
other growers. AMS is not aware of
existing restrictions on settlement
information. New restrictions related to
settlement information will be reviewed
by AMS for compliance under the Act,
but AMS has not changed the rule based
on this comment.
Comment: AMS invited comments on
whether a grower being completely out
of feed for 12 hours is an appropriate
length of disruption to trigger reporting
of a feed disruption or whether it should
instead require a shorter time, such as
6 hours. Multiple farm bureau and
poultry group commenters indicated
that 6 hours rather than 12 hours would
be an appropriate length of time to
trigger reporting. The commenters stated
that being out of feed for 6 hours drops
birds’ feed conversion efficiency and
would affect the grower on the
settlement sheet. The commenters stated
this length would allow growers to
establish a pattern, as growers would
have records that let them take action to
correct the problem if they are out of
feed multiple times for multiple hours
during consecutive growout periods.
A poultry industry association
commented that the turkey industry has
almost no feed disruptions lasting more
than 12 hours, except in cases of natural
disaster. The commenter noted in the
rare instances when a disruption might
extend to that length of time, addressing
it depends on timely and accurate
reporting from the turkey grower and
that turkey integrators have no control
over the circumstances when growers
do not report feed disruptions in a
timely manner.
AMS response: AMS notes that
research 105 has shown that commercial
broilers deprived of feed for more than
12 hours develop hemorrhages in their
intestines that curtail usual growth
patterns and lessen the efficiency of
conversion of feed into meat. AMS also
noted feed withdrawal for 6 hours was
not found to be statistically
significant.106 Accordingly, in the final
rule, AMS retains the 12-hour threshold
for reporting feed disruptions. However,
AMS will monitor implementation and
105 K.L. Thompson, ‘‘Optimizing Feed
Withdrawal Programs,’’ Purdue Extension (2008).
106 S.F. Bilgili and J.B. Hess. ‘‘Tensile strength of
broiler intestines as influenced by age and feed
withdrawal.’’ J. Appl. Poultry Res. 6 (1997): 279–
283.
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encourages growers to report specific
instances or patterns of concern to AMS.
Disclosure of Grower and Breeder
Identity Information
Section 201.214(b)(4) of the proposed
rule would require dealers to include
the breeder facility identifier for the
flock in the information they provide to
growers within 24 hours of flock
delivery. Under proposed
§ 201.214(c)(1), dealers, when providing
grouping or ranking sheets to growers at
time of settlement, would not have to
show the names of other growers, but
would be required to show their
housing specification and the actual
figures upon which the grouping or
ranking is based for each grower
grouped or ranked during the specified
period. AMS proposed in
§ 201.214(c)(2)(iv) to require the
grouping or ranking sheets provided to
growers to disclose the breeder facility
identifiers for each poultry grower
ranking participant. However, AMS did
not propose to require dealers to
disclose the names of breeder farms.
AMS invited comments on whether it
should reevaluate this position. In
addition, live poultry dealers currently
are not required to disclose the names
of all competing growers on ranking
sheets. AMS did not propose to change
this requirement but asked whether it
should require dealers to disclose the
names of all competing growers in
settlement documents.
Comment: Several groups
representing poultry growers urged
AMS to require integrators to provide
the names of breeding facilities, saying
extreme vertical integration means that
many breeding facilities are owned by
the integrator delivering chicks to a
grower and if growers knew the actual
names of breeders, it would be easier for
them to independently assess relevant
variables or issues rather than relying on
the integrator’s representations.
However, other groups representing
poultry growers did not support a
requirement for live poultry dealers to
disclose farm names.
AMS response: The purpose of the
rule is to provide the grower with
reliable information needed to make
decisions in the management of their
farm. Consistent designation of breeder
facility identifiers is sufficient for the
purposes of enabling growers to
consistently understand and track the
input. AMS makes no changes based on
the comment.
Comment: Farm bureaus and poultry
grower groups said it is not necessary
for AMS to require live poultry dealers
to disclose the names of all competing
growers in settlement documents. These
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commenters opposed disclosure of
individual grower names and said such
disclosure would be a breach of privacy.
AMS response: AMS agrees grower
privacy is important and should be
appropriately protected. The names of
competing growers does not provide
useful information to growers to assess
the role that differences in inputs
played in their settlement or, from that,
in the expected future profitability of
their operations because the purpose of
the disclosure is to prevent deception
against the grower and to enable the
grower to perform better. The
appropriate focus then is on the
substantive differences in the inputs, or
the housing specifications, which
requires disclosure of those items
among different settlement participants
but can be done using consistent
identifiers other than actual grower
names. To affirm that position, AMS
retained the language of the proposed
rule, which provided that the names of
the growers need not be provided in the
settlement document, consistent with
current practice under existing
disclosure requirements for settlement.
AMS is not adopting a prohibition on
live poultry dealers using the names of
growers as that was not proposed.
Further, because the goal of the rule is
disclosure, rather than prohibitions
against disclosure, such a prohibition is
outside of the scope of this rule.
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J. Effective Date
Comment: Live poultry dealers and
industry groups noted AMS has
publicly indicated that it is considering
changes to multiple regulations under
the Act and said that AMS should share
all proposed rules specific to the
tournament system at one time to allow
stakeholders to comment on the
proposed changes in their entirety.
Commenters further urged AMS not to
take an incremental approach to
updating the regulations and asserted
that such an approach would create
challenges for poultry growers and
dealers, such as increasing compliance
costs, confusion, uncertainty, and
frustration. In addition, these
commenters recommended that AMS
provide one effective date for all
regulatory changes under the Act. One
commenter recommended that the
effective date for this rule be delayed for
five years to give live poultry dealers
time to build five-year records for
disclosure and to develop the necessary
systems for producing required
disclosures. Another commenter
suggested that AMS conduct outreach to
explain to producers and food
companies the regulatory changes and
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how they will be implemented and
enforced.
AMS response: Our approach has
been to address the regulatory needs of
the poultry industry systematically and
as swiftly as possible. All broiler
growers can benefit immediately from
the greater transparency offered by this
final rule. AMS does not want to
postpone implementing this regulation,
which makes available vital information
growers need when deciding whether to
incur capital expenses and engage in
broiler production. Nor do we want to
delay provision of useful input
information to broiler growers in
tournaments, who can use that
information immediately to make
production management decisions.
Based on AMS’s experience with the
industry, we believe live poultry dealers
have ready access to the historical
information they are required to provide
in the Disclosure Documents. AMS
agrees with commenters that the final
rule should provide sufficient time to
implement any changes it requires.
Therefore, the effective date for this rule
is 75—rather than 60—days following
publication in the Federal Register. Live
poultry dealers will need to amend
contracts in some instances, create
records processes, format the
incorporation of new information in
existing documents, and create
Disclosure Documents using USDA
instructions. Seventy-five days provides
the length of at least one flock to
prepare for implementation of the rule.
USDA will have resources available to
answer questions as appropriate.
Additionally, based in part on the
experience of recent settlements
between DOJ and a large poultry
company, AMS believes this period will
provide sufficient time for live poultry
dealers to update their compliance
systems and policies and procedures
and commence complying with the rule.
AMS agrees that it should conduct
outreach to producers and food
companies regarding regulatory
changes, implementation, and
enforcement. Over the course of this
rulemaking, AMS has published
informational materials, including a fact
sheet and a video webinar to help the
public understand the proposed rule.
AMS intends to conduct further
education and outreach following the
finalization of the rule.
AMS rejects comments calling for a
delay of rules until other rules are
proposed and critiquing its incremental
approach. To the contrary, AMS is
deploying a nuanced approach to these
rulemaking proposals such that
stakeholders and the public can review
each individual proposal on its own
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merits. This approach offers producers
and other market participants greater
ability to effectively evaluate the
impacts of each proposal on the market
and their particular interests, and
enables commenters to more effectively
tailor and target comments.
K. Regulatory Notices & Analysis and
Executive Order Determinations
Comment: Live poultry dealers said
the full cost of the proposed rule will
likely be many times more than
predicted by AMS. For example, these
commenters asserted AMS greatly
underestimated the costs of creating the
recordkeeping systems needed to
comply with the proposed rule, the
proposal would add costs generated by
frivolous litigation, and the proposal
would undermine the tournament
system and replace it with a new model
that would likely drive up the costs of
chicken production. Live poultry
dealers and industry groups said AMS’s
own estimate indicates the 10-year
aggregate costs will be higher for poultry
growers than for live poultry dealers.
AMS response: In drafting and
estimating the cost of the proposed rule,
AMS consulted auditors and
supervisors who are familiar with live
poultry dealers’ records from many
years of experience in auditing live
poultry dealers for compliance with the
Act. In contrast, commentors provided
no estimated costs for AMS to review.
AMS expects the recordkeeping systems
most live poultry dealers already have
in place will enable them to gather
much of the information in the
disclosures from records available to
them, which limits the necessity of
developing new recordkeeping systems.
The higher costs estimated for broiler
growers compared to live poultry
dealers is due to the large number of
broiler growers that receive the
disclosures compared to a small number
of live poultry dealers. The primary
costs to the live poultry dealers are the
one-time costs to develop the
disclosures, while the ongoing costs to
update, distribute, and maintain the
disclosures are relatively small. A small
number of live poultry dealers will
incur relatively small costs to distribute
the disclosures to relatively large groups
of growers, but AMS anticipates every
grower will read the disclosures. The
actual cost to any individual grower is
estimated as the value of the time
required to read the Disclosure
Documents, but with more than 16,000
broiler growers with more than 19,000
broiler growing contracts and just over
40 live poultry dealers engaged in
broiler production, aggregate cost
estimates are higher for broiler growers
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than for live poultry dealers, though the
rule has a significantly lower cost
estimate for a single grower than for a
single dealer.
The new requirements in the rule are
primarily disclosures of information by
dealers to broiler growers. AMS does
not expect that informing growers about
their contracts and how they are ranked
in the tournament system will cause
frivolous lawsuits. Increased
transparency through this final rule
should improve confidence in the
tournament system rather than
undermine it.
Comment: Groups representing
poultry growers said they agree with
AMS that the benefits of the proposed
rule outweigh the costs. They suggested
that benefits for poultry growers include
being able to predict their range of
income for the coming year and having
transparency about the quality of inputs
provided by the live poultry dealer.
These commenters also said that
additional benefits to poultry-dependent
communities could include fewer
growers going into debt to build
facilities and consequently fewer
abandoned poultry houses degrading
the value of farms and the community.
Industry groups said they do not believe
estimates of benefits are well-founded,
and that the calculation of benefits
merely attempts to quantify the revenue
reduction poultry growers would be
willing to accept in exchange for
increased transparency under the
proposal.
AMS response: USDA estimated that
some of the benefits of the rule would
come from reduced revenue uncertainty
associated with greater transparency.
The greater transparency would include
a tighter range around predicted income
due to such factors as a higher
probability of receiving a new contract
and lower variability in compensation
under the contracts due to greater
transparency about input quality as it
relates to revenue. USDA also listed a
number of benefits in qualitative terms,
as it does not have the information to
estimate empirical values associated
with them.
AMS expects that if property values
change due to final §§ 201.102 or
201.104, the change would be very
small. Broiler growers who abandoned
housing and exited the industry will not
benefit from the rule and will have no
incentive to remove the abandoned
housing. For broiler growers that remain
in the industry, expected gains would
be modest relative to the costs removing
buildings.
The concept of risk aversion is well
founded. It is the reason that insurance
and futures and options exchanges exist,
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for example. The risk aversion benefits
estimated for the rule represent the
value to growers of a decrease in the
uncertainty of revenue due to increased
transparency. Since growers do not have
to pay for the increased transparency,
the estimated benefit to growers is the
same as their net benefit (i.e., the gross
benefit minus the cost to growers of
increased transparency). And at the
industry level, even with the small
decrease in grower revenue uncertainty
assumed for the analysis, the benefits to
growers are higher than the cost to
dealers of complying with the rule.
L. Legal Issues Relating to the Proposed
Rule
Comment: Industry groups argued
AMS lacks authority to issue this rule.
A commenter said that AMS asserts a
broad mandate to rewrite private
contracts and affect relationships
between live poultry dealers and
poultry growers, yet the Act’s legislative
history shows Congress intended for
AMS’s statutory authority to be much
narrower in scope. A commenter cited
a Supreme Court decision shortly after
the Act’s passage noting that Congress
enacted the Act to ensure the free flow
of livestock and prevent packers from
using monopoly power to set unfair
prices,107 as well as the 1935 expansion
of the Act to include live poultry
dealers, in which Congress said it
targeted unfair, deceptive, and
fraudulent practices and devices
because ‘‘they are an undue restraint
and unjust burden upon interstate
commerce.’’ 108
Commenters continued by arguing, for
instance, AMS does not have authority
to promulgate parts of the proposed rule
it justifies based on the goal of achieving
‘‘fair income’’ for poultry growers or
that characterize growing arrangements
as incomplete contracts so it can target
information asymmetry between dealers
and growers. A commenter rejected the
concept that the Act gives AMS
authority to prevent information
asymmetry in contracts between dealers
and growers, stating that it has not
established that the Act’s prohibition on
unfair, unjustly discriminatory, or
deceptive practices applies to ‘‘plainly
written poultry growing arrangements.’’
Commenters contended that many other
lawful business arrangements do not
encompass all conditions affecting
compensation in the contract and that
all real-world markets have some
information asymmetry. A commenter
107 Stafford v. Wallace, 258 U.S. 495, 514–15
(1922).
108 Packers and Stockyards Act of 1921, Public
Law 74–272, § 501, 49 Stat. 648, 648 (1935).
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83261
also contended AMS’s citation of FTC
regulation under sec. 5 of the FTC Act,
which Congress drew on in enacting the
Act to support its targeting of
information asymmetry, undermines its
authority in relation to the proposed
rule. According to this commenter, this
section was interpreted at the time of
the Act’s enactment to ‘‘prohibit anticompetitive and monopolistic conduct,
but not to restrict legitimate corporate
activity’’ such as the tournament
system.
A meat and poultry industry
association said AMS lacks statutory
authority to justify disclosure of
potentially confidential, proprietary,
and competitively sensitive payment
history information required in
§ 201.102(d) of the final rule, as well as
the requirement in § 201.102(d)(4) of the
final rule that live poultry dealers must
disclose contact information for State
university extension service offices or
county farm advisor’s offices. The
commenter also said if, as implied
under § 201.102(g)(1)—Grower Receipt
of the final rule, AMS is taking the
position that live poultry dealers can
violate sections 202(a) and 202(b) of the
Act even if they do not harm
competition, it is acting without
statutory authority, as Congress enacted
the Act to curb monopolies and courts
have consistently held that the statute
only prohibits anticompetitive practices.
AMS response: AMS disagrees that
competition was at the time of
enactment, or is now, the controlling
factor for all regulations issued under
the Act. Moreover, even where relevant,
competition for the purposes of Section
202 must be defined by the plain
meaning of Section 202, which defines
the scope of USDA’s authority.
Therefore, the meaning of competition
or harm to competition must be broader
than its meaning under the antitrust
laws.109
As USDA noted in a 2010 proposed
rule, a 2016 interim final rule, and a
2017 final rule,110 it has consistently
taken the position that ‘‘in some cases,
a violation of section 202(a) or (b) can
be proven without proof of predatory
intent, competitive injury, or likelihood
of competitive injury.’’ Scope of
Sections 202(a) and (b) of the Packers
109 See Spencer Livestock Com. Co. v. Department
of Agriculture, 841 F.2d 1451 at 1455 (9th Cir. 1988)
(The Packers and Stockyards Act is more than ‘‘a
mere mirror of the antitrust laws’’).
110 In the 2017 final rule, USDA withdrew the
2016 interim final rule out of concerns about
confusion over the conflicting court decisions on
this subject and the absence of a good cause
justification for foregoing notice and comment.
However, USDA reaffirmed its longstanding
position that harm to competition is not required,
which we again reaffirm here.
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and Stockyards Act, 81 FR 92566, 92567
(Dec. 20, 2016); see also Scope of
Sections 202(a) and (b) of the Packers
and Stockyards Act, 82 FR 48594, 48595
(Oct. 18, 2017); Implementation of
Regulations Required Under Title XI of
the Food, Conservation and Energy Act
of 2008; Conduct in Violation of the Act,
75 FR 35338, 35340 (June 22, 2010).
USDA has previously explained that
this consistently-held position is based
on the language, structure, purpose, and
legislative history of the Act. See, e.g.,
Scope of Sections 202(a) and (b) of the
Packers and Stockyards Act, 81 FR at
92567–92568. USDA continues to
adhere to this longstanding position,
despite the disagreement of some courts
as to the proper scope of the Act. See
Scope of Sections 202(a) and (b) of the
Packers and Stockyards Act, 82 FR
48596 (Oct. 18, 2017) (reaffirming that
‘‘USDA has adhered to this
interpretation of the P&S Act for
decades’’ and rejecting comments that
this interpretation is not the USDA’s
longstanding position).
Even where courts have disagreed
with USDA’s longstanding position that
competitive harm is not required under
these sections, some have not held that
such a requirement would apply to a
claim of deception under § 202(a), as
opposed to other claims such as
unfairness claims. See, e.g., Been v. O.K.
Industries, 495 F.3d 1217, 1227 (10th
Cir. 2007) (‘‘We are concerned here only
with whether unfairness requires a
showing of a likely injury to
competition, not whether deceptive
practices require such a showing.’’)
Such AMS authority to regulate
deception is well-established. This
includes forming the basis of a proposed
consent decree between DOJ and two of
the nation’s largest poultry companies
relating to the failure to provide the
transparency that would be mandated
under this rule. As DOJ set forth in its
complaint: ‘‘Poultry processors have
also engaged in deceptive practices
associated with the ‘tournament
system.’ Under this system, growers are
penalized if they underperform other
growers, but poultry processors control
the key inputs . . . that often determine
a grower’s success. Poultry processors
often fail to disclose the information
that growers would need to evaluate and
manage their financial risk or compare
offers from competing processors.’’ 111
The regulatory mechanism of
disclosure, as set forth in this rule, is
also well-established as a cure for
111 U.S. v. Cargill Meat Solutions, Complaint, D.
MD, July 25, 2022, available at https://
www.justice.gov/atr/case-document/file/1528331/
download.
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deceptive practices that arise from
information gaps in the marketplace,
including AMS’s disclosures already in
place under the Act for settlement in the
poultry sector, FTC’s mandated
disclosures by franchise companies to
franchisees, and a range of other
mandated disclosures by Federal and
State regulators. Rather than
undermining AMS’s authority, a
reference to FTC’s sec. 5 authority on
deceptive practices is entirely
appropriate, as courts have long
recognized the similar design and
application of the two provisions.
Violations under FTC’s sec. 5 deceptive
practices authority do not require a
showing of harm to competition.112
Regardless, even if a showing of harm
to competition were required for a
deception claim, the deceptive practices
prohibited in this rule would meet such
a requirement. AMS rejects the idea that
a prohibition on certain widespread
deceptive practices is inconsistent with
addressing anticompetitive conduct,
including information asymmetries and
the holdup and other anticompetitive
risks that may arise from them and
distort competition in the market for
grower services.
AMS affirms the longstanding view
that fraud and deception have no value
or place in a competitive market.113
Indeed, the academic literature has long
understood that Section 202 covers two
broad categories of conduct, (1)
anticompetitive conduct and (2)
conduct described as ‘‘market
abuses.’’ 114 AMS seeks to enable
growers to better protect themselves
from hidden risks in contracting and the
operation of those contracts. Preventing
deception enhances competition among
dealers by enabling growers to compare
offers and reasonably assess entry into
the business. Preventing deception
improves how markets function by
forcing dealers to compete for growers
service based on the merits of
commercial offer the producer is
making. Preventing deception enables
growers to better assess their
performance vis-a`-vis other growers.
112 Federal Trade Commission, Policy Statement
on Deception, 1983. See also, e.g., FTC v.
Minuteman Press et al., E.D. N.Y. (1998), available
at https://www.ftc.gov/legal-library/browse/casesproceedings/minuteman-press-et-al. Morrone’s
Water Ice, Inc.; Franchise Consultants Corporation
d/b/a Franchise Consultants Group; et al., E.D.
Penn. (2003), available at https://www.ftc.gov/legallibrary/browse/cases-proceedings/x020068morrones-water-ice-inc-franchise-consultantscorporation-dba-franchise-consultants-group-et-al.
113 Bruhn’s Freezer Meats, Inc. v. Department of
Agriculture, 438 F.2d 1332, at 1341 (mislabeling
grading of meat violates section 202); USDA v.
Excel Corp, 397 F.3d 1285 (failure to disclose
change in grading system violates section 202).
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Ultimately, the conduct at issue is
squarely within the purposes of the Act.
Where conduct ‘‘prevents an honest give
and take in the market,’’ it ‘‘deprives
market participants of the benefits of
competition’’ and ‘‘impedes . . . a wellfunctioning market.’’ 115 In its report on
the 1958 amendments to the Packers
and Stockyards Act, the U.S. House of
Representatives explained that the
statute promotes both ‘‘fair competition
and fair trade’’ and is designed to guard
‘‘against [producers] receiving less than
the true market value of their
livestock.’’ 116 Deception subverts
normal market forces, undermines
market integrity, and deprives
producers and growers of the true value
of their products and services.
Comment: Poultry grower groups
argued that AMS has both authority and
obligation to implement the rule. These
commenters said the Act authorizes the
Secretary of Agriculture to make rules
necessary to carry out its provisions,
and one of its cornerstones is ensuring
that business arrangements between live
poultry dealers and growers are not
unfair, unjustly discriminatory,
deceptive, or facilitating undue
preferences. They contended that,
because the proposed rule aims to
improve the information asymmetry
between dealers and growers so that
violations of the Act no longer persist
unchecked, its requirements clearly fall
within AMS’s rulemaking authority.
The commenters also cited evidence
that Congress intended the Act to go
beyond previous antitrust laws to target
an expansive range of anticompetitive
conduct by meat companies.
AMS response: AMS affirms the view
that the conduct that may be prohibited
under the Act is more expansive than
that which is covered under the
Sherman Act, 15 U.S.C. 1 et seq., the
Clayton Act, 15 U.S.C. 12 et seq. or the
FTC Act, 15 U.S.C. 41 et seq., and in
particular, that deceptive practices
sought to be prohibited by the rule fall
within the authority of the Act.
Comment: Live poultry dealers and
industry groups argued that the
proposed rule is beyond the scope of
congressional direction. They said that
there was a lack of further congressional
action since the Food, Conservation,
and Energy Act of 2008 (2008 Farm Bill;
Pub. L. 110–234; June 18, 2008) and that
AMS has completed its rulemaking
under the 2008 Farm Bill. This, the
commenters assert, indicates that
Congress views the current framework
as adequate.
115 Kades,
116 Kades
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These commenters also cited the
major questions doctrine put forth by
the recent Supreme Court decision in
West Virginia v. Environmental
Protection Agency 117 as a limiting factor
for AMS’s authority to promulgate this
rule. According to these commenters,
the issue of whether the Federal
Government should further regulate
poultry growing contracting has
political and economic significance, and
AMS has not demonstrated clear
congressional authorization to exercise
its powers on this issue, meaning the
agency lacks the authority for this rule.
Poultry grower groups argue that the
proposed rule does not trigger the major
questions doctrine because, rather than
making a radical change based on vague
authority, it is based on clear
congressional mandates and represents
only incremental improvements to the
preexisting regulatory regime. These
commenters further contended that sec.
202 of the Act, which enumerates the
practices Congress has deemed
unlawful, provides a clear and forceful
statement of AMS responsibility to
regulate such practices.
AMS response: AMS exercises its
statutory authority under the Act, which
includes authority to address deceptive
practices. The lack of congressional
action since the 2008 Farm Bill does not
impact the scope of AMS’s authority
under the Act.
With respect to the major questions
doctrine, there is no indication that this
regulation is of such economic and
political significance that the Congress
did not give the Secretary authority to
write a regulation of this kind. In West
Virginia, 142 S. Ct. at 2604, the Court
noted that EPA’s modeling ‘‘would
entail billions of dollars of compliance
costs[.]’’ In comparison, this rule will
cost less than 10 million dollars over the
course of the next decade. Sec. 407 of
the Act gives AMS the authority to
‘‘make such rules, regulations, and
orders as may be necessary to carry out
the provisions of’’ the Act. 7 U.S.C. 228.
Moreover, at least one court has
concluded that Congress intended for
the USDA to have broad regulatory
power under the Packers and
Stockyards Act. As the Court of Appeals
for the Eighth Circuit observed in
Bruhn’s Freezer Meats of Chicago, Inc.
v. U.S. Dep’t of Agric., 438 F.2d 1332,
1339 (8th Cir. 1971), ‘‘[t]he Act was
framed in language designed to permit
the fullest control of packers and
stockyards which the Constitution
permits, and its coverage was to
encompass the complete chain of
commerce and give the Secretary of
117 142
S. Ct. 2587 (2022).
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Agriculture complete regulatory power
over packers and all activities connected
therewith. H.R. Rep. No. 324, 67th
Cong., 1st Sess. (1921); H.R. Rep. No. 77,
67th Cong., 1st Sess. (1921).’’
As noted above, AMS has long
maintained disclosure requirements
under the Act with respect to poultry
contracting and the operation thereof,
including settlement payment
disclosures. Further, regulation of the
communication to producers under
related regulations is not at all unusual:
buyers in grade and yield transactions
must provide accurate accounting and
provide the basis of the grade. Similarly,
FTC has long required disclosures under
its Franchise Rule 118 to address similar
deception risks for business owners
seeking to enter into a franchise
relationship with a franchisor. In this
rule, AMS updates its disclosure rules
to reflect the realities of modern poultry
growing, which are comparable to a
franchisor-franchisee contractual
relationship, including with respect to
taking out debt, taking into account the
range of other risks relating to doing
business in this sector such as trust and
compliance issues as exemplified by a
recent DOJ poultry industry price fixing
prosecution and Packers and Stockyards
Act deceptive practices investigation
resulting in a number of guilty pleas and
consent decrees.119
Comment: Live poultry dealers and
industry groups argued that AMS relied
on anecdotes and did not cite actual
violations of the Act that would justify
the proposed rule. These commenters
indicated that the administrative record
thus does not support a rulemaking on
poultry grower contracting at this time,
especially one likely to have significant
costs affecting supply chains. State
attorneys general and groups
representing poultry growers noted a
proposed settlement agreement between
DOJ and poultry processors 120
stemming from the recent wage
suppressing conspiracy and Packers and
Stockyards Act deceptive practices
investigation that includes disclosure
requirements similar to those in the
proposed rule. Groups representing
118 16
CFR parts 436 and 437.
Agreement: U.S. v. Pilgrim’s Pride Corp.,
Feb. 23, 2021, 20–cr–00330–RM, available at
https://www.justice.gov/atr/case-document/file/
1373956/download. Consent Decree: U.S. v. Cargill
Meat Solutions. Corp., et al. (Sanderson Farms, Inc.,
Wayne Farms, LLC), July 25, 2022, 1:22–cv–01821–
ELH, available at https://www.justice.gov/opa/pr/
justice-department-files-lawsuit-and-proposedconsent-decrees-end-long-running-conspiracy.
120 U.S. v. Cargill Meat Solutions. Corp., et al.
(Sanderson Farms, Inc., Wayne Farms, LLC), July
25, 2022, 1:22–cv–01821–ELH, available at https://
www.justice.gov/opa/pr/justice-department-fileslawsuit-and-proposed-consent-decrees-end-longrunning-conspiracy.
119 Plea
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poultry growers suggested this consent
decree indicates that these companies
are capable of running their businesses
under fairer and more transparent
conditions.
AMS response: AMS chose to take a
regulatory approach, as opposed to caseby-case enforcement, to enable it to
better tailor its approach to addressing
the concerns under the Act that AMS
has identified in the poultry sector,
especially relating to broiler chickens.
Such an approach permits AMS to
transparently engage the public,
industry, Congress, and others, and
obtain the benefit of accepting public
comments during the regulatory
process. Yet, as indicated by the State
attorney general commenters, AMS has
also determined it appropriate to refer
cases regarding deception in the failure
to disclose important information
regarding financial risks in poultry
growing arrangements and the operation
of those arrangements to DOJ for
handling as circumstances warrant, as
exemplified by the recent consent
decree whereby the nation’s third
largest poultry processor agreed to
provide the disclosures as set forth in
the proposed rule and updated by this
final rule. This case and settlement
indicate both the seriousness of the
ongoing deceptive practices violation, as
well as the appropriateness and
workability of the remedy defined by
this rule.
Comment: Several farm bureaus
suggested the rule should have been an
interim final rule, rather than a final
rule, to give AMS the regulatory
flexibility to immediately address any
effectiveness issues with the
disclosures. Groups representing
poultry growers said the proposal’s
required disclosure of material
information to protect parties to
asymmetrical business relationships is a
longstanding policy tool for promoting
healthier markets and does not violate
any ‘‘cognizable right,’’ including
dealers’ First Amendment rights.
Groups representing poultry growers
also urged AMS to affirm its
interpretation of secs. 202(a) and (b) of
the Act to not require a harm-tocompetition standard, as it is highly
difficult for farmers to meet this
standard, and argued that USDA’s
December 2020 ‘‘undue preferences’’
rule 121 creates a substantial loophole for
121 Agricultural Marketing Service, ‘‘Undue and
Unreasonable Preferences and Advantages Under
the Packers and Stockyards Act, Final Rule, Dec. 11,
2020, 85 FR 79779, available at https://
www.federalregister.gov/documents/2020/12/11/
2020-27117/undue-and-unreasonable-preferences-
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dealers by allowing them to justify
actions they claim are a ‘‘reasonable
business decision.’’ An industry group
said the heightened disclosure
requirements between dealers and
growers in the proposed rule may raise
competitive concerns by creating an
information exchange of specific and
competitively sensitive information
between a wide range of actual and
potential competitors. The commenter
also said marketing agreements may
experience a chilling effect, as increased
transparency may lead dealers to offer
growers uniform contract terms that
diminish competition as well as
individual growers’ marketing power.
AMS response: AMS notes the
commenters’ interest in an interim final
rule. An interim final rule is generally
reserved for situations where the
agency, for good cause, finds that prior
notice is ‘‘impracticable,’’
‘‘unnecessary,’’ or ‘‘contrary to the
public interest,’’ in which case the
agency may issue a final rule without
providing the usual notice and comment
required by the Administrative
Procedure Act (APA).122 However,
because AMS has already solicited
comments on the proposed rule, it is
unnecessary to issue an interim rule and
make a good cause finding to justify
non-compliance with the APA’s notice
and comment requirements.
AMS further affirms that no further
showing is required to prove a violation
of the Act beyond a violation of the
provisions set forth in this rule.
AMS believes that the provision of
additional information to growers will
improve the competitive market
conditions by allowing growers to better
understand, evaluate, and compare
contracts among dealers, enhancing
their ability to bargain efficiently by
reducing deceptive practices. Deception
has no competitive value or place in the
market and can create inefficiencies.
AMS is skeptical that contract terms
will necessarily become more uniform
and further finds that the new
transparency will allow live poultry
dealers to compete for growers on the
merits of their contracts and aid in
marketplace innovation as live poultry
dealers and growers remain free to
develop new and innovative methods
for conducting their business. Previous
AMS rulemakings related to disclosures
in poultry growing have not been shown
to negatively affect innovation.
With respect to information
exchanges, AMS notes that statistical
sharing services today routinely collect
and-advantages-under-the-packers-and-stockyardsact.
122 5 U.S.C. 553(b)(B).
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and make available a wide range of
information only to live poultry dealer
subscribers. AMS has tailored the
disclosures to provide information
useful to growers in their particular
circumstances and has reduced
requirements such as the disclosure of
information across all complexes in part
to reduce risks of inappropriate
information sharing.
M. Other Comments About the Proposed
Rule
Comment: A farm bureau
recommended adding several
requirements for grower contracts, such
as: performance verification provisions
to protect growers from arbitrary
company sanctions on bird placements;
clear statements of layout times (i.e.,
time between flock placements) and
company compensation for extended
periods of reduced or no bird
placements; a requirement that contracts
should not be subject to change by the
company without prior agreement from
the grower; starting pay rates that allow
amortization of debt load in 10 years,
cover normal expenses, and provide the
grower a livable income; additional
compensation for above-average feed
conversion; and company responsibility
for low performance based on companyprovided inputs. In addition, the
commenter recommended that contracts
clearly disclose risks and provide
grower protections against early
termination, and that live poultry
dealers provide growers with ample
time to review contracts. This
commenter said contracts that require
arbitration for grower disputes should
also require arbitration for dealer
disputes, while another farm bureau
said AMS should ban mandatory
arbitration clauses in contracts.
AMS response: AMS shares many of
the concerns expressed in the above
comment summary. Improved
transparency including contract
requirements requiring minimum flock
placements and minimum density will
reduce asymmetric information
problems and address many of the
issues related to flock placements and
out time. Additionally, this regime will
deter dealers from constant contract
modifications that would trigger a new
Disclosure Document. Further, AMS
views the financial disclosures required
in this rule as appropriate to inform
growers of revenues, potential
profitability, and debt management.
Growers maintain the statutorily
protected right to opt out of arbitration.
Therefore, no changes were made to the
proposed rule.
Comment: A poultry grower group
indicated the rule does not address the
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lack of transparency associated with
farm research and development. The
commenter explained that poultry
companies do not own their own farms;
therefore, research and development for
farm-level changes cannot take place
within the company’s business
infrastructure. According to the
commenter, the result is that major
dealers benefit from expensive research
and development efforts, and the
unknowing poultry growers routinely
shoulder the burden of live poultry
dealer ‘‘experiments’’ with neither
consent from nor compensation for the
grower.
To stay ahead of the field and make
advancements, according to the
commenter, companies use a few
common strategies, such as merging
with and acquiring smaller companies
that are pioneers in new fields,
leveraging financial and political
influence over research at universities,
and experimenting through mandatory
trial-and-error efforts on contract farms,
such as studying the effect of windows
in chicken houses and introduction of
slow-growth chickens as a research
program with associated adjustments in
flock schedules for growers.
The commenter provided an example
of growers being required to change
growing practices due to the increased
value of chicken paws (feet) without
seeing a benefit. Multiple farmers
contracting with three different
integrators have come to the commenter
expressing concerns about having to
change growing practices to promote the
health of chicken paws. No farmer was
compensated for these changes
according to the commenter; however,
the companies have experienced a
financial windfall because of growing
demand in China for chicken paws.
According to the commenter, farmers
spent their own time and energy to
increase company profits and that effort
was not reflected in their tournament
ranking.
AMS response: AMS shares some of
the concerns cited above, particularly
with regard to practices resembling
‘‘trial and error’’ experimentation at the
expense of contract growers. To the
extent that programs of this type are a
change in housing specification, new
disclosures would be required for
growers to evaluate the benefit. Where
adjustments to management practices
cause growers to incur additional costs
and are not covered in the contract, a
new contract may be required, again
triggering a new Disclosure Document.
Separately, AMS has proposed rules to
better protect growers’ rights to organize
associations and cooperatives, which
may enable them to more effectively
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work together and bargain under
existing laws.123 Therefore, no changes
to the proposal are warranted.
Comment: A group representing
poultry growers noted that, under the
proposed rule, live poultry dealers will
still control most of the production
inputs, which fails to close the extreme
disparity in bargaining power between
growers and dealers. Based on the
experience of growers in its network,
the commenter described several
problems it anticipated will remain
even if the proposed rule is
implemented.
The commenter stated debt
accumulation is a problem that will
remain even if the rule is implemented.
The commenter stated that growers lack
leverage to negotiate favorable contract
terms, often incurring substantial debt
loads as they invest significant amounts
of money in poultry houses and in
modifications and upgrades that dealers
require as a condition of contract
renewal. According to the commenter,
growers are then stuck paying back the
loans to the same companies that
required them to make the investments
in the first place, leading to ‘‘crippling
accumulations of debt’’ resulting in
numerous bankruptcies, and the amount
of this debt is expected to increase.
Finally, the commenter said there are
limited legal resources available to
farmers to fight against poultry
companies, with time and legal costs
deterring farmers from seeking justice in
court. According to the commenter,
while the proposed rule provides some
legal recourse for controversies related
to the Disclosure Document and poultry
growing arrangements, the exchange of
information between growers and
dealers is not sufficient and the costs of
litigation are still often prohibitive.
AMS response: AMS is concerned
about poultry grower debt
accumulation. AMS is confident the
disclosure regime outlined in this
proposal will provide baseline
information relating to revenue and
profitability of their operations,
improving grower debt management. As
housing specifications evolve and new
investments are mandated, under this
rule, growers will receive additional
required disclosures that will better
enable growers to assess additional
capital investments. AMS will continue
to review capital improvement programs
and evaluate those programs under
existing § 201.216. AMS encourages
123 Agricultural Marketing Service, ‘‘Inclusive
Competition and Market Integrity,’’ Proposed Rule,
Oct. 3, 2022, 87 FR 60010, available at https://
www.federalregister.gov/documents/2022/10/03/
2022-21114/inclusive-competition-and-marketintegrity-under-the-packers-and-stockyards-act.
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growers with specific concerns to
submit complaints and tips through
farmerfairness.gov or to contact AMS
directly at 1–833–DIAL–PSD (1–833–
342–3773).
Comment: Commenters recommended
AMS require dealers proposing or
requiring modifications to existing
grower infrastructure housing
specifications to disclose their own costbenefit analysis to growers. Further
those commenters said that any finding
that any such cost/benefit disclosures
are broadly fallacious, i.e., that where
the dealer’s cost-benefit claims did not
match the actual costs and benefits,
should constitute a violation of the Act
as a deceptive practice.
AMS response: While this rule does
require some financial disclosures
related to additional capital
improvements and other deviations
from the prior five-year grower
payments, AMS is not requiring the
production and disclosure of a dealer’s
cost-benefit analyses because AMS is
not prepared, at this time, to assess all
potential cost-benefit factors, as well as
the necessary formatting and
recordkeeping requirements that would
be implicated. In the interim, AMS will
also continue to review grower
solicitation practices and inducement
materials. Practices and materials that
are deceptive have and will continue to
be violations of the Act. AMS is not
adopting such a requirement at this time
but may consider the value of such a
disclosure as part of future steps. In
particular, AMS is reviewing this issue
in light of comments received on the
June 2022 ‘‘Advance Notice of Proposed
Rulemaking on Poultry Tournaments:
Fairness and Related Concerns’’ and
may elect to address issues related to
additional capital investments in future
rulemakings.
Comment: Commenters also wanted
AMS to require live poultry dealers to
give poultry growers a minimum of 6
months to begin any upgrades they
might demand.
AMS response: AMS is also not at this
time adopting any requirements relating
to the timing for when housing upgrades
could be required. The request by
commenters is not within the scope of
this rule, and AMS needs additional
time to consider the matter. AMS will
consider the matter as part of comments
received to the June 2022 ‘‘Advance
Notice of Proposed Rulemaking on
Poultry Tournaments: Fairness and
Related Concerns.’’
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83265
VIII. Regulatory Analyses
A. Executive Orders 12866, 13563, and
14094
AMS is providing a regulatory
analysis in conformance with the
requirements of Executive Orders
12866—Regulatory Planning and
Review, 13563—Improving Regulation
and Regulatory Review, and 14094—
Modernizing Regulatory Review, which
direct agencies to assess all costs and
benefits of available regulatory
alternatives and, if regulation is
necessary, to select regulatory
approaches that maximize net benefits,
including potential economic,
environmental, public health and safety
effects, distributive impacts, and equity.
Executive Order 13563 emphasizes the
importance of quantifying both costs
and benefits, reducing costs,
harmonizing rules, and promoting
flexibility. Executive Order 14094
reaffirms, supplements, and updates
Executive Order 12866 and further
directs agencies to solicit and consider
input from a wide range of affected and
interested parties through a variety of
means.
In the development of this rule, AMS
considered several alternatives, which
are described in the Regulatory Impact
Analysis, below.
The final rule is not expected to
provide, and AMS did not estimate, any
environmental, public health, or safety
benefits or impacts associated with the
proposed rule.
This final rule has been determined to
be significant for the purposes of
Executive Order 12866 and therefore
has been reviewed by the Office of
Management and Budget (OMB). Details
on the estimated costs of this final rule
can be found in the rule’s economic
analysis.
AMS is amending 9 CFR part 201 by
adding new definitions to § 201.2,
adding new § 201.102 regarding contract
and disclosure requirements for live
poultry dealers engaged in broiler
production, and adding new § 201.104
regarding live poultry dealer
responsibilities when they use poultry
grower ranking systems to settle
payments for broiler growers. Based on
its familiarity with the industry, AMS’s
Packers and Stockyards Division (PSD)
prepared an economic analysis of the
final rule as part of the regulatory
process. The economic analysis
includes a cost-benefit analysis of the
rule. PSD then discusses the impact on
small businesses.
B. Regulatory Impact Analysis
As a required part of the regulatory
process, AMS prepared an economic
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analysis of the costs and benefits of final
§§ 201.102 and 201.104.
The poultry industry is highly
vertically integrated. That is, a single
entity owns or controls nearly all the
steps of poultry production and
distribution. Poultry production
contracts reduce the costs for live
poultry dealers of negotiation with
individual growers over the purchase of
individual flocks of poultry and relieve
live poultry dealers from the burden and
risks of owning and maintaining poultry
houses. The growout portion of
production is largely accomplished
through contract growers, who bear
these burdens and risks. Most poultry,
and particularly broilers, are grown
under production contracts.
The USDA National Agricultural
Statistics Service’s (NASS) Census of
Agriculture (Agricultural Census)
reported that 96.3 percent of broilers
were raised and delivered under
production contracts in 2017.124 Live
poultry dealers place chicks in poultry
houses owned by contract growers.
Typically, live poultry dealers provide
young poultry, feed, medication, and
harvest and transportation services to
these poultry growers, who house, feed,
and tend the growing birds.
In order to grow poultry on a
commercial scale, a poultry grower must
invest in poultry housing. The
investment is often substantial. Most
farms have multiple houses, and the
total investment required can easily
exceed $1 million. Also, the housing is
built and equipped specifically for the
purpose of growing poultry. The costs of
adapting the housing for any other
purpose can be prohibitive.125 Because
the live poultry dealers control most
aspects of a grower’s production,
growers are dependent upon the actions
of the live poultry dealers to recoup the
grower’s substantial and specific
investment. This puts growers in a
particularly precarious position in
which contract growers have only a
small number of live poultry dealers
with whom to do business in almost all
geographic markets within the United
States.
Broiler industry vertical integration
leads to many risks being borne by
contract poultry growers. Due to the
large investment required of poultry
growers, the financial risk of protecting
that investment is substantial. Because
live poultry dealers maintain such
heavy influence over many key aspects
124 USDA, NASS. 2017 Census of Agriculture:
United States Summary and State Data, (April
2019): 7, 56.
125 For a discussion of the difficulty in adapting
of broiler grow houses for other purposes, see
Vukina and Leegomonchai 2006, Op. Cit.
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of growers’ production, growers have
significant exposure to liquidity risks,
should flock placements and revenues
fall.
Thus, contract poultry growers are
subject to numerous risks associated
with live poultry dealers’ control over
key aspects of their operations, such as
the frequency and density of flock
placements, and the related risks of not
having control over the genetic quality
or health of the chicks placed by the live
poultry dealers. Live poultry dealers
control the scheduling of feed
deliveries, which also can impact feed
conversion and thus grower pay. Also,
production variables such as bird target
weights and growout periods are
determined by the live poultry dealer,
further adding to the risks borne by
contract poultry growers.
Live poultry dealers benefit from
poultry growing contracts by having
control over the quality and supply of
inputs (birds) into the processing plant
while remaining free from many of the
risks related to capital investments in
growing capacity, where those costs and
associated risks are borne by the
growers. On the other hand, contracts
shift other risks from the grower to the
live poultry dealer. With live poultry
dealers responsible for chick genetics,
feed quality, and other inputs (with the
possible exception of fuel), changes in
input prices do not directly affect
growers. Growers also do not bear the
risks (or enjoy the benefits) of price
changes in the value of live poultry or
poultry meat, as they do not own the
poultry or poultry meat and thus do not
sell it. Research on poultry growing
contracts in the broiler market has
shown live poultry dealers to shift that
variation in input costs and output
prices, which comprises up to 84
percent of the variation in returns to
broiler production.126 127
The most common form of poultry
growing contract is a relative
performance contract, also known as a
‘‘tournament’’ contract in the industry.
Tournament systems are a type of
poultry contract under which the live
poultry dealer assigns each grower to a
settlement pool, which consists of all
the growers’ given flocks that the live
poultry dealer processed in a given
week. The live poultry dealer provides
the grower with the production inputs
of an initial supply of chicks and feed
126 C.R. Knoeber and W.N. Thurman, ‘‘Don’t
Count Your Chicken . . . : Risk and Risk Shifting
in the Broiler Industry.’’ American Journal of
Agricultural Economics 77 (1995): 486–496.
127 This research is regularly cited and reaffirmed
in the current economics literature including
Tsoulouhas and Vukina (2001) and McDonald
(2014) that we cite elsewhere.
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and veterinary support throughout the
growing period; the grower provides the
inputs of housing, water, electricity,
labor, and management. At the time of
processing, the live poultry dealer
collects the finished broilers and
calculates an average performance
metric for the settlement pool, typically
the feed-conversion ratio or similar
metric. The grower’s compensation
under the tournament contract, is the
sum of a base payment, which typically
depends on the total liveweight of the
finished birds and a payment or
deduction based on the average
performance metric for the settlement
pool. For most tournaments, the
payment or deduction formula is the
difference between the grower’s
performance metric and the settlement’s
average, subject to a scaling multiplier.
Production periods for poultry are
sufficiently short that a grower will
typically be in several tournaments in a
year.
Agricultural production is an
inherently risky endeavor, and returns
have some level of risk no matter the
marketing channel or structural
arrangement. For example, common
production risks are systematic risks
common to all growers in a given
geography (which may coincide with a
given tournament) such as weather or
widespread disease, feed quality, or
genetic strains. Academic research finds
that where risks are likely to affect all
growers in a region, compensation is
less likely to be adversely affected under
a tournament contract than it would be
on a simple price per unit of weight
contract.128 For example, if an unusual
heat wave caused all growers in a
tournament to experience poorer feed
conversion, all tournament growers may
require more feed and a longer grow
period for their flocks to reach the target
weight. They would receive the same
pay for the weight produced, while not
being penalized for the higher feed costs
incurred to produce that weight. Some
aspects of the tournament system are
not necessary to account for these risks,
however, and other contractual
arrangements may account for the same
risks without the concerns associated
with the tournament system.
As noted, no contract type will
protect growers from all market risks,
and tournament contracts still leave
growers exposed to some common risks.
For example, when plants had to reduce
processing capacity due to the COVID–
19 pandemic, growers experienced
128 See, e.g., Theofanis Tsoulouhas and Tomislav
Vukina. ‘‘Regulating Broiler Contracts:
Tournaments Versus Fixed Performance
Standards,’’ American Journal of Agricultural
Economics 83 (2001): 1062–1073.
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reduced compensation to the extent that
they received fewer or less dense
placements from the live poultry
dealers.
Tournament systems do not insulate
growers from the other risks of contracts
discussed above such as financial risk,
liquidity risk, the risk from incomplete
contracts, and the lack of control over
inputs and production variables.
Tournaments also introduce new
categories of risks to growers, such as
group composition risk and added risks
of settlement-related deception or fraud.
The risks of deception or fraud as
discussed above include the inability of
growers to verify the accuracy of
payments, and to detect discrimination
or retaliation.
Group composition risk is the risk
associated with the composition and
performance of other growers in their
settlement groups. A particular grower’s
pay is impacted by the performance of
others in the tournament. Growers have
no control over the other tournament
members’ effort and performance, nor
over with which other growers they are
grouped. An individual grower’s effort
and performance can be static, and yet
that grower’s payments could fluctuate
based on the grower’s relative position
in the settlement group. Further,
changes in payment may not be
commensurate with the changes in
grower’s effort and performance. These
characteristics of the tournament system
can add to the variability of pay and
affect the ability of growers to plan and
measure their own effort and
performance. On the other hand, the
system is designed to incentivize
participants to do their best in the hopes
of gaining higher rewards.
The integrators also determine which
growers are in each settlement group.
While growers in a group must have
similar flock finishing times, a live
poultry dealer could move a grower into
a different grouping by altering layout
times to change the week that a grower’s
broilers are processed. An individual
grower may perform consistently in an
average performing pool, but if the live
poultry dealer places that grower in a
pool with more outstanding growers,
those outstanding growers raise the
group average and reduce the fees paid
to the individual. At its discretion or per
the poultry growing arrangement, a live
poultry dealer may remove certain
growers it considers to be outliers from
a settlement pool. This would likely
affect the average performance standard
for the settlement and affect the
remaining growers’ pay. Group
composition risk can be more relevant
to some growers when a tournament’s
settlement group contains growers with
different quality or ages of grow houses.
In addition, the current
documentation of tournament terms
provides little to no information on the
expected variation between individual
payments over time. Providing the
settlement formula alone does not give
growers a means by which they can
predict total income over a meaningful
period. More generally, an individual
grower cannot estimate the variance in
pay across periods with the same
accuracy as the live poultry dealer with
which he or she contracts. Information
provided pursuant to this rule addresses
this issue. Also, growers do not
currently receive information that
allows them to understand the impact of
many live poultry dealer decisions
made during the growout period that
may affect grower incomes. For
example, live poultry dealers may
switch the genetics of chicks supplied to
growers or change a feed ration or
supplier. Increased information required
in settlement disclosure regarding
inputs and other factors will make it
easier for growers to assess the impacts
of these decisions and improve their
ability to protect themselves against any
83267
systematic issues related to those
decisions.
Live poultry dealers benefit from
tournaments systems, because they
provide live poultry dealers more
control and certainty of the total pay to
all the growers in a settlement group.
They also benefit from the system if it
disincentivizes shirking with respect to
production efficiency. However, the
incentive to avoid shirking can be
imparted in a fixed performance
standard contract as well.
There is asymmetry in the
information available to live poultry
dealers and the growers with whom
they contract. Some of the information
held by live poultry dealers would be
valuable to growers because it
influences grower compensation in
tournament contracts and might help
growers in negotiating contract terms
and making decisions about capital
investments and flock management.
The contracts themselves are often
incomplete and exhibit asymmetry in
the information available to live poultry
dealers and contract growers. Because
live poultry dealers supply most of the
inputs, much of the production
information is available to the grower
only from the live poultry dealer. For
example, the contract grower may not
know precisely how much feed it used,
or how much weight the flock gained
under his or her care, unless the live
poultry dealer provides the information.
Growers often lack negotiating
leverage with live poultry dealers to
demand transparency and completeness
in contracts. Most growers have few live
poultry dealers in their area with whom
they can potentially contract. The table
below shows the number of live poultry
dealers that broiler growers have in their
local areas by percent of total farms
(number of growers), total birds
produced (number of birds), and total
production (pounds of birds produced).
TABLE 1—LIVE POULTRY DEALERS IN BROILER GROWERS’ AREA 129
Integrators in grower’s area 130
Farms
Broilers
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Number ....................................................................................
Percent of total
1 ...............................................................................................
2 ...............................................................................................
3 ...............................................................................................
4 ...............................................................................................
>4 .............................................................................................
No Response ...........................................................................
129 MacDonald.
(June 2014) Op. Cit.
(June 2014) Op. Cit. (Percentages
were determined from the USDA Agricultural
Resource Management Survey (ARMS), 2011.
130 MacDonald.
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21.7
30.2
20.4
16.1
7.8
3.8
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Have additional
integrator in area
Percent of farms
23.4
31.9
20.4
14.9
6.7
2.7
‘‘Respondents were asked the number of integrators
in their area, which was subjectively defined by
each grower. They were also asked if they could
change to another integrator if they stopped raising
broilers for their current integrator.’’ The 7 percent
PO 00000
Production
24.5
31.7
19.7
14.8
6.6
2.7
7
52
62
71
77
Na
of those facing a single integrator assert that they
could change, presumably through longer distance
transportation to an integrator outside the area. Ibid.
p. 29 and 30.)
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The data in the table show that 52
percent of broiler growers (farms),
accounting for 55 percent of broilers
produced and 56 percent of total
production and, report having only one
or two integrators in their local areas.
This limited integrator competition may
accentuate the contract risks. Even
where multiple integrators are present,
there can be significant costs to
switching, including owing to the
differences in technical specifications
that integrators may require. To switch,
the growers likely may need to invest in
new equipment and learn to apply
different operational techniques due to
different breeds, target weights and
growout cycles.
Live poultry dealers hold information
on how individual poultry growers
perform under a variety of contracts.
The mean number of contracts for the
live poultry dealers filing annual
reports 131 with AMS in 2021 was 472.
The largest live poultry dealers
contracted with several thousand
growers. Because live poultry dealers
provide most of the inputs to all the
growers in each tournament, the live
poultry dealers have information about
the quality of the inputs, while each
grower can know only what he or she
can observe. A grower almost certainly
will not know about the inputs received
by other growers. Live poultry dealers
also have historical information
concerning growers’ production and
income under many different
circumstances for all the growers with
which they contract, while an
individual grower, like most other
producers, has information concerning
only its own production and income.
New growers entering the industry
may have little or no experience from
which to draw information for forming
expectations for future input and
maintenance costs or for evaluating the
value of initial capital expenditures.
Experienced growers entering into new
contracts are limited to their own past
experience to draw upon. Live poultry
dealers have information from all their
contractors about performance, costs,
and expenditures.
Compensation based on relative
performance when growers are not in
control of many of the inputs of
production may create opportunities for
live poultry dealer deception. It is also
difficult, especially for new growers, to
understand how compensation is likely
to vary over time as a result of
131 All live poultry dealers are required to
annually file PSD form 3002 ‘‘Annual Report of
Live Poultry Dealers,’’ OMB control number 0581–
0308. The annual report form is available to public
on the internet at https://www.ams.usda.gov/sites/
default/files/media/PSP3002.pdf.
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tournaments and other terms that may
not currently be present in all contracts
such as placement frequency and flock
density. This problem of incomplete
contracts is of particular concern due to
the cost and lifespan of the capital
required to be a poultry grower.
With incomplete contracts, at least
one party will have discretionary
latitude to deviate from expectations.132
For example, poultry production
contracts often do not guarantee the
number of flocks a grower will receive
even with long-term contracts, even
though this is critical information for
understanding the value of the contract
to the grower.133 The type and
frequency of required upgrades to
existing equipment and housing are
often left to the discretion of the live
poultry dealer.
Hold-up is a problem that occurs in
poultry production contracts because
the poultry grower’s outlay of the
significant capital requirements of
growing chickens results in specialized
equipment and facilities with little
value outside of growing chickens. As a
result, growers entering the market are
tied to growing chickens to pay off the
financing of the capital investment.
Growers might fear that they will be
forced to accept unfavorable contract
terms because they must continue
production to pay off lenders and have
few, if any, alternative live poultry
dealers with which they can contract.
This can lead to underinvestment in the
capital necessary to grow broilers.
Comments From the Proposed Rule and
Changes to the Final Rule
After consideration of public
comments, AMS determined to adopt
the proposed rule as a final rule with
several modifications. In order to make
compliance with the final rule as easy
as possible for regulated entities, AMS
reorganized the final rule by moving the
new disclosures required into revised
§ 201.102 and new § 201.104. In the
final rule, AMS removed the proposed
revisions to § 201.100 requiring all live
poultry dealers to provide certain
additional disclosures to prospective or
current growers and placed the
requirements in new § 201.102. AMS
also moved the requirements from
proposed new § 201.214 to new
§ 201.104. This reorganization of the
rule does not impact the recordkeeping
requirements or costs of the final rule.
A commenter representing the turkey
industry noted the proposed rule was
132 Steven Y. Wu and James MacDonald,
‘‘Economics of Agricultural Contract Grower
Protection Legislation,’’ Choices, Third Quarter,
2015, pp 1–6.
133 MacDonald (June 2014) Op. Cit.
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largely based on research into the
broiler industry. The commenter
asserted it would be extremely difficult
for turkey companies to implement the
rule due to differences between turkey
and chicken production. Based on
comments received to the proposed rule
and AMS further study, AMS has
limited the applicability of final
§§ 201.102 and 201.104 to live poultry
dealers engaged in the production of
broilers. The final rule does not apply
to live poultry dealers engaged in the
production of turkeys, ducks, geese, and
other domestic fowl. The proposed rule
considered the costs and benefits to all
live poultry dealers. This change
reduced the number of live poultry
dealers to whom the final rule applies
from 89 respondents made up of live
poultry dealers engaged in the
production of broilers, turkeys, ducks,
geese, and other domestic fowl under
the proposed rule to 42 live poultry
dealers engaged in the production of
broilers in the final rule. Accordingly,
this change reduced the costs and
benefits from the proposed rule to the
final §§ 201.102 and 201.104. Existing
provisions of § 201.100 continue to
apply to live poultry dealers engaged in
the production of broilers, turkeys,
ducks, geese, and other domestic fowl.
The new provisions of § 201.102 and the
new § 201.104 apply only to live poultry
dealers engaged in the production of
broilers. AMS made several other
changes to the proposed rule that are
reflected in the final rule.
Live poultry dealers commented that
the full cost of the proposed rule would
likely be many times greater than
predicted by AMS. The commenters
asserted AMS greatly underestimated
the costs of creating the recordkeeping
systems needed to comply with the
proposed rule.
Commenters suggested that AMS
underestimated the amount of time
required to create and maintain
recordkeeping systems. They also
suggested that AMS did not adequately
consider the IT and legal costs or the
cost of hiring compliance officers. Some
live poultry dealers indicated that the
rule would promote frivolous lawsuits,
and suggested the requirement to list
ongoing litigation would discourage
settlement. Some commenters also
indicated that disclosures would
undermine the tournament payment
system, forcing live poultry dealers to
adopt less efficient methods of
compensation, which would increase
the price of chicken and ultimately
increase inflation.
AMS consulted auditors and
supervisors who are familiar with live
poultry dealers’ records from many
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years of experience with AMS in
auditing live poultry dealers for
compliance with the Act. AMS expects
that recordkeeping systems that most
live poultry dealers already have in
place will enable them to gather much
of the information in the disclosures
from records they already have available
to them and limit the necessity of
developing new recordkeeping systems.
AMS made no changes to the
information collection requirements of
the proposed rule based on this
comment.
AMS proposed to require live poultry
dealers to make various financial
disclosures to broiler growers, including
a table showing ‘‘average annual gross
payments’’ made to growers at all
complexes owned or operated by the
live poultry dealer for the previous
calendar year, as well as to growers at
the local complex. Poultry and meat
trade associations suggested AMS
require dealers to disclose average
annual gross payments only for the
grower’s local complex. These
commenters noted that complexes in
different geographic areas face different
economic conditions, arguing that
information about payments at other
complexes would not be useful and
would potentially confuse growers.
Therefore, AMS removed the proposed
requirement disclose payment
information for all complexes owned or
operated by the dealer. AMS maintains
the requirement for live poultry dealers
engaged in the production of broilers to
disclose payment information only
relating to the broiler grower’s local
complex. Accordingly, this change
reduced the information collection
burden on live poultry dealers from the
proposed to the final rule.
Growers and live poultry dealers also
requested in comments that AMS
provide more specificity on how to
calculate average annual gross
payments. While the proposed rule
provided detail on calculations, the
commenters felt the instructions were
not sufficiently specific to assure that
live poultry dealers could comply and
that broiler growers received adequate
data on which to base business
decisions. Therefore, AMS developed
more detailed instructions on how to
calculate them. The instructions are
included in Form PSD 6100 (Live
Poultry Dealer Disclosure Document).
AMS added a modest amount of time to
its cost estimates for live poultry dealers
to review the instructions.
Several commenters recommended
that AMS require the disclosure of
grower turnover data. Grower turnover
rates relate to the general risk of
termination and non-renewal of
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contracts with a live poultry dealer.
This information would allow growers
to compare the turnover rates of
multiple live poultry dealers as a risk
factor when making contracting
decisions. Therefore, AMS added a
provision of the final rule requiring live
poultry dealers engaged in the
production of broilers to disclose
average annual broiler grower turnover
rates for the previous calendar year and
the average of the 5 previous calendar
years at both the company level and the
local complex level. AMS developed
instructions for how to calculate average
annual broiler grower turnover rates.
The instructions are included in Form
PSD 6100. AMS added a modest amount
of time to its cost estimates for live
poultry dealers to review the
instructions and calculate grower
turnover rates.
Numerous commenters from the
grower and live poultry dealer sectors
expressed that these provisions should
be in plain and unambiguous language
to avoid discrepancies in interpretation
among the various parties, regulators,
and courts. Some commenters also
indicated a need to ensure growers who
are not native speakers of English can
understand the disclosures.
Considering the comments, AMS
added a provision at § 201.102(g)(4) of
the final rule to require live poultry
dealers engaged in the production of
broilers to make reasonable efforts
ensure that growers are aware of their
right to request translation assistance,
and to assist the grower in translating
the Disclosure Document at least 14
calendar days before the live poultry
dealer executes the broiler growing
arrangement, but the grower has the
option to waive up to 7 calendar days
of that time period. Reasonable efforts
include but are not limited to providing
current contact information for
professional translation service
providers, trade associations with
translator resources, relevant
community groups, or any other person
or organization that provides translation
services in the broiler grower’s
geographic area. The rule would also
prevent a live poultry dealer from
restricting a broiler grower or
prospective broiler grower from
discussing or sharing the Disclosure
Document for purposes of translation
with a person or organization that
provides language translation services.
AMS also added a provision to
§ 201.100 preventing live poultry
dealers from restricting growers from
sharing the Disclosure Documents with
legal counsel, accountants, family,
business associates, and financial
advisors or lenders.
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83269
The proposed rule would have
required live poultry dealers to provide
growers with copies of the Disclosure
Document and a true written copy of the
contract 7 calendar days prior to
executing the contract. The final rule
changes the 7-day requirement to a 14day requirement, but the broiler grower
has the option to waive 7 calendar days
of that time period. These changes did
not affect the estimation of costs or
benefits in the rule because growers
retain the flexibility to determine the
length of time they need to review the
documentation.
The proposed rule also would have
required live poultry dealers to obtain
the broiler grower’s or prospective
broiler grower’s dated signature as
evidence of receipt of the Disclosure
Document or obtain alternative
documentation acceptable to the
Administrator as evidence of receipt.
The final rule will require live poultry
dealers to obtain the broiler grower’s or
prospective broiler grower’s dated
signature as evidence of receipt or
obtain alternative documentation to
evidence delivery and that best efforts
were used to obtain grower receipt.
AMS expects in either case live poultry
dealers to engage in personal
communications with the grower and
the delivery of the Disclosure
Document, resulting in comparable
levels of effort by the live poultry
dealer. Accordingly, these changes did
not affect the estimation of costs or
benefits in the rule.
In the proposed rule, AMS did not
specifically propose to require live
poultry dealers to disclose their policies
on grower payments with respect to
increased lay-out time, diseased flocks,
natural disasters and other depopulation
events, feed issues or outages, or
policies on grower appeal rights and
processes. Multiple commenters
suggested AMS include these
disclosures. In the final rule, AMS
added a provision at § 201.102(c)(4)
requiring live poultry dealers engaged in
the production of broilers to disclose
policies and procedures on increased
lay-out time; sick, diseased, or high
early mortality flocks; natural disasters,
weather events, or other events
adversely affecting the physical
infrastructure of the local complex or
the grower facility; other events
potentially resulting in massive
depopulation of flocks, affecting grower
payments; feed outages including outage
times; and grower complaints relating to
feed quality, formulation, or suitability,
as well as any appeal rights arising out
of these events. AMS added a modest
amount of time to its cost estimates for
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live poultry dealers to comply with this
new requirement.
AMS proposed in § 201.100(f)(1)(i) to
require live poultry dealers to establish,
maintain, and enforce a governance
framework reasonably designed to audit
the accuracy and completeness of the
disclosures in the Disclosure Document,
which must include audits and testing,
as well as reviews of an appropriate
sampling of Disclosure Documents by
the principal executive officer or
officers.
AMS determined that the requirement
in § 201.102(f)(2) for the principal
executive officer or officers to certify the
governance framework and the accuracy
of the Disclosure Document adequately
covers the intended requirement for
officers of this level to be focused on the
effectiveness of the governance
framework. AMS concluded that this
level of detail about the audit process
for the Disclosure Document was not
necessary, particularly as AMS seeks to
balance the need to ensure reliability of
these statements with the burden on the
principal executive officers regarding
details of the governance process.
Therefore, AMS removed the proposed
requirement for audit, testing, and
reviews of an appropriate sampling of
Disclosure Documents by the principal
executive officer or officers, which
reduces the burden on regulated
entities.
AMS expects §§ 201.102 and 201.104
to mitigate costs associated with
asymmetric information by requiring
live poultry dealers to disclose more
and potentially valuable information to
growers. Section 201.102 requires live
poultry dealers engaged in the
production of broilers to make
disclosures before entering into new
contracts, renewing existing contracts,
or requiring growers to make additional
capital investments. Section 201.104
requires live poultry dealers engaged in
the production of broilers to disclose
additional information at the placement
and settlement of each flock.
AMS considered three alternatives to
the final §§ 201.102 and 201.104. The
first is ‘‘do nothing’’ or the status quo.
All regulations under the Act would
remain unchanged. It forms the baseline
against which the second alternative,
§§ 201.102 and 201.104 will be
compared. The rule removes portions of
the current § 201.100, which already
requires disclosure from live poultry
dealers, and replaces them with a more
extensive set of disclosure requirements
in § 201.102 that only apply to live
poultry dealers engaged in broiler
production. Since the cost and benefit
analysis are compared to the cost and
benefits status quo, costs and benefits
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estimated here reflect only cost and
benefits associated with the new
requirements in §§ 201.102 and 201.104.
AMS considered a third alternative
similar to §§ 201.102 and 201.104. The
alternative would leave all of the
requirements in §§ 201.102 and 201.104
the same, but entirely exempt live
poultry dealers engaged in broiler
production that process less than 2
million pounds per week. This third
alternative would exempt smaller live
poultry dealers, some of which might
not have sophisticated records.
However, since larger growers do most
of the contracting (as quantified later in
this analysis), most broiler growers
would still receive the disclosures. AMS
then estimated and compared the costs
and benefits of the alternatives and
selected §§ 201.102 and 201.104 as the
preferred alternative to finalize.
Discussion of the Benefits of the
Regulations
The primary purpose of the final rule
is to make information available to
broiler growers when that information
would be most important in decisionmaking. Currently, most broiler
production contracts are incomplete,
and providing more information would
likely lower the uncertainty the grower
faces over their revenue and profit
estimates. In addition, growers lack
negotiating leverage with live poultry
dealers to demand, among other things,
transparency, and completeness in
contracts. A benefit of this regulation is
that by providing prospective growers
and those contemplating additional
capital investments better information
on expected returns, growers should be
able to make more informed business
decisions and can more readily avoid
entering into contracts that are not
financially sustainable. The regulation
still retains the rights of broiler growers
to discuss the terms of the broiler
growing arrangement and the Disclosure
Document with other growers for the
same live poultry dealer, advisors, and
governmental agencies even if the
broiler growing arrangement contains a
confidentiality provision. This
facilitates better information sharing,
decision making, and risk management.
By alleviating market failures,
disclosures may help the market for
grower services function better and help
growers benefit from competition in the
market for their services.
Better information on live poultry
dealer commitments should reduce
hold-up concerns that may stifle
investment by growers. Better
information and transparency on
placements and settlements could
reduce grower concerns over live
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poultry dealer manipulation of inputs
and reduces the potential for deception
or fraud, and the high degree of control
and influence that the live poultry
dealer has over many, if not most, of the
critical inputs that will determine the
business success of the grower’s
operation.
Alternatively, the placement and
settlement information could provide
broiler growers with concrete
information they can use to support,
individually or collectively, any
grievances they might have with a
particular live poultry dealer. At the
same time, this regulation provides
growers a measure of protection against
risks of retaliation or discrimination that
may arise from disputes with live
poultry dealers during the course of the
broiler growing arrangement.
Section 201.102 lays out the
information that a live poultry dealer is
required to provide to broiler growers
contemplating a relationship with that
live poultry dealer. The disclosure of
information is required whenever a live
poultry dealer seeks to renew, revise, or
replace an existing broiler growing
arrangement. In addition, such
disclosure is required for any new
contract as well as whenever a live
poultry dealer is requiring an original
capital investment or a change to
existing housing specifications that
require an additional capital
investment. These are the times when
the information will be most useful in
informing broiler growers of the
potential implications of entering into a
contract with the live poultry dealer or
contemplating additional investment in
capital stock. This information allows
potential growers to make more
informed and financially sustainable
business decisions. Inaccurate
information provided in disclosure to
growers, and other bait-and-switch
tactics, such as making a material policy
change but not through a new or revised
contract, would be a deceptive practice
and would constitute a violation of this
section and § 202(a).
When a live poultry dealer requires a
broiler grower to make a capital
investment, the dealer is required to
provide the grower with the capital
specifications they are required to meet
and with a letter of intent sufficient to
seek financing, as well as a full
disclosure of the terms of the agreement.
This information allows more informed
investment decisions and help potential
lenders accurately assess risk.
The Disclosure Document provides
information on the length of the
contract, number of guaranteed
placements, stocking density, and
notification of certain risks inherent in
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the agreement. All this information
helps to evaluate the longer-term
viability of the investment and reduce
hold-up fears.
Grower awareness of minimum flock
placements and minimum stocking
densities enables growers to more
accurately estimate the risks and returns
associated with their operations
including debt management, cash flow,
and other risks. It may enable growers,
as well as financial institutions, to better
estimate and manage risk, potentially
including the acquisition of external
insurance and risk management
products.
In addition to information about the
specific terms of the contract,
information is provided to inform
growers about the live poultry dealer’s
financial history and history of
grievances with growers with whom
they have contracted. This information
also improves growers’ ability to
evaluate their decisions and the
potential for hold-up related concerns.
The Disclosure Document includes
information on the level and
distribution of payments made to broiler
growers under contract to the live
poultry dealer. It describes past and
expected future annual returns for
similarly situated growers based on the
complex and the live poultry dealer’s
other complexes with the same housing
specifications. It presents returns at
various levels of performance, as not all
growers perform equally relative to the
fixed cost of entry, making it easier for
potential growers to estimate their
revenues from the contract. The
Disclosure Document also provides
insights into the variability of cash flow
within any given year to enable the
grower to improve business decisionmaking and manage risk. The increased
information in the Disclosure Document
on the expected levels and distributions
of payments has the added benefit of
lowering the uncertainty of revenue
streams for contract broiler growers.
The reliability of these disclosures
would be reinforced by a governance
framework and anti-fraud protections.
In presenting this information to
growers, the Disclosure Document
reduces information asymmetry and the
risk of fraud and deception. As a result,
prospective growers and those
contemplating additional capital
investments have more confidence in
the integrity of the information and
consequently in their ability to make
sound decisions.
A live poultry dealer is required to
provide the Disclosure Document to
growers prior to their entering into an
agreement to allow time to discuss the
terms of the agreement with advisors,
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lawyers, business associates, bankers,
USDA, or other extension organizations
to obtain assistance in evaluating the
agreement.
Section 201.104 requires additional
ongoing disclosure of information
related to broiler grower ranking pay
systems (‘‘tournaments’’). This
information is focused on the actual
distribution of inputs to growers at the
time of placements and the outcomes of
the ranking system. Some of this
information improves growers’ ability to
manage the flocks under their care,
while other information helps growers
to evaluate the factors affecting the
outcome of the ranking system.
Lack of transparency in the
tournament calculations has led to risks
by growers relating to the potential for
fraud and deception. These include
grower inability to verify the accuracy of
payments, to measure and manage risks,
and to detect possible discrimination or
retaliation for disputes arising under the
broiler growing arrangement. The
provision of additional transparency
around tournament systems in this
regulation is designed to address those
risks. Provision of information regarding
consistency of inputs (both at the time
of placement and at the time of
settlement), and any adjustments to
methods or formulas, will foster more
transparent, accurate, reliable, and
widely accepted tournaments, and
greater ability to monitor and hold live
poultry dealers accountable for
divergences from high standards of
market integrity.
Broiler growers who participate in
numerous tournaments over time will
benefit from the added information they
receive at the time of placement and
settlement, as they will gain experience
and knowledge useful in maximizing
their growout performance. Because live
poultry dealer-provided inputs may
vary from flock-to-flock, growers may
enhance their knowledge and improve
management practices and skills with
access to input distribution information,
particularly at the stage when the input
is provided. The increased information
in the settlement and placement
disclosures will allow growers to assess
the impacts of input variability on
revenues over time, which will also
serve to lower the uncertainty of
revenue streams. Growers armed with
this information may be better able to
efficiently allocate resources, reduce
uncertainty of revenue streams, and
maximize their individual profitability.
Confidentiality restrictions have
historically prevented broiler growers
from releasing details of contract pay
and performance, thus limiting the
availability of comprehensive data with
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83271
which to consider the effects of
alternative regulatory and institutional
structures on market performance.134
Subsequently, the literature on these
topics is insufficient to allow AMS to
fully estimate the magnitude of the
inefficiencies corrected by the rule, nor
the degree to which the disclosure
requirements and additional grower
protections will address them. Though
AMS is unable to completely quantify
the benefits of the regulations, this
analysis explains numerous benefits
derived from increased information,
reduced information asymmetries, and
reduction in risk of deception by live
poultry dealers. Each of the disclosures
required under §§ 201.102 and 201.104
of the rule provides information that
will be useful to growers in making
more informed decisions and reducing
concerns resulting from lack of access to
information.
AMS estimated the industry benefits
in two parts, one quantifiable and the
other non-quantifiable. For the
quantifiable part, AMS will provide a
minimum value of the benefit to broiler
growers from the additional information
in the disclosures required under
§§ 201.102 and 201.104 and will refer to
this minimum benefit as Gmin.
The quantifiable minimum benefit of
the financial, placement, and settlement
disclosures, Gmin, arises from the
additional information available to
growers that serves to lower the
uncertainty in revenue streams of
contract growers. Lower uncertainty in
revenue streams results in a reduction
in revenue risks to growers. According
to economic principles, a risk averse
grower will benefit economically from a
reduction in revenue risk.135 AMS
quantifies the benefit to growers from
the reduction in revenue risk by
estimating the Risk Premium (RP) to
contract broiler growers from reducing
variability of their net revenues from the
disclosures. AMS will then use RP as
Gmin, the quantifiable minimum benefit
of the disclosures.
However, §§ 201.102 and 201.104
have additional, other non-quantified
benefits to growers and live poultry
dealers, referred to as BO.136 These other
benefits arise from a reduction in risk of
retaliation by allowing growers to share
134 For instance, the analysis of MacDonald
(2014), MacDonald and Key (2014), and Vukina and
Leegomanchai (2006) (Op. Cit.) relies on data from
grower surveys. Knoeber and Thurman (1995) relies
on contract settlement data from a single integrator.
135 A risk averse grower prefers revenue streams
with low uncertainty to revenue streams with high
uncertainty when both have the same mean return.
136 In the context of this analysis, ‘‘nonquantified’’ is defined to include measures which
are quantitative in principle but whose value
cannot be estimated at present.
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information even if the growing
arrangement contains a confidentiality
provision and reducing the potential for
fraud and deception by live poultry
dealers by providing better, more
accurate, and verifiable information to
growers. These other benefits may lead
to an improved allocation of capital and
labor resources (such as increased
capital investment through the
reduction in perceived hold-up risk, and
more informed decisions on whether
and with whom to enter into a growing
arrangement), leading to improved
efficiencies and an improved allocation
of resources for broiler growers and live
poultry dealers.
AMS refers to the total benefits to the
industry as BT, which is the sum of the
quantified Gmin, and the non-quantified
BO, benefits or, BT = Gmin + BO. AMS is
not able to fully quantify the total
benefits, BT, from improved grower
information, more informed decisionmaking, reduced revenue uncertainty,
grower risk reductions, and an
improved allocation of resources. The
benefits AMS was able to quantify
exceed the costs AMS was able to
quantify.
AMS expects that the effects on the
industry from the final rules will be
very small in relation to the total value
of industry production. In other words,
AMS expects the impacts on total
industry supply to be immeasurably
small, leading to immeasurably small
indirect effects on industry supply and
demand, including price and quantity
effects.
Estimation of Costs and Benefits of the
Regulations
AMS estimated costs and benefits for
two alternatives. The first is the
§§ 201.102 and 201.104, which is the
preferred alternative. The second
alternative is the same as § 201.102 and
201.104 with a complete exemption for
live poultry dealers engaged in broiler
production that process fewer than 2
million pounds per week. Both are
compared against a baseline of status
quo, which has no costs or benefits.
The quantified costs of §§ 201.102 and
201.104 primarily consist of the time
required to gather the information and
distribute it among the broiler growers.
These costs of the rule will fall on live
poultry dealers as they collect and
disseminate the required information,
and on broiler growers based on the
value of the time they put into
reviewing the disclosures. Though
broiler growers are expected to incur
costs in reviewing the information, they
would be the primary beneficiaries of
the information, which would be
reflected in their ability to make more
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informed decisions. The broiler growers
must review the information in order to
realize the benefits. This may result in
a more efficient allocation of capital to
the broiler growing industry.
There were 42 live poultry dealers to
which the rule would apply that filed
annual reports 137 with AMS, and their
reports indicate that they had 19,808
contracts with 16,524 broiler growers
during their fiscal year 2021.
AMS expects the total costs and
benefits would be very small relative to
the size of the market. Chicken sales in
the U.S. for 2019 were approximately
$58.6 billion. The total quantified costs
of §§ 201.102 and 201.104 are estimated
to be greatest in the first year at $3.4
million, or 0.006 percent (six
thousandths of one percent) of revenues.
Although an increase in cost of sixthousandths of a percent of sales could
reduce supply, the reduction would be
extremely small and would not
measurably alter broiler supply.
Provisions of final § 201.202 and
201.204 require only disclosures to
growers. Neither requires any changes
in the way live poultry dealers or broiler
growers produce or process broilers.
Given the nature of the rule, AMS
expects that neither live poultry dealers
nor broiler growers would measurably
change any production practices that
would impact the overall supply of
broilers.
Expected quantified costs are
estimated as the value of the time
required to produce and distribute the
disclosures required by §§ 201.102 and
201.104 as well as the time required to
create and maintain any necessary
additional records. AMS’s experience in
reviewing live poultry dealers’ records
indicates that most live poultry dealers
already keep nearly all of the required
records.
Final § 201.102 requires live poultry
dealers disclose information to broiler
growers concerning the growout
contract, capital investments, grower
earnings, recent litigation, recent
bankruptcies, and live poultry dealers’
policies concerning events such as
disasters or feed outages that might
occur during the growout period. The
disclosures will require live poultry
dealers to retain records, but AMS
experience in reviewing live poultry
dealers’ records indicates that most live
poultry dealers already keep nearly all
of the necessary records.
137 All live poultry dealers are required to
annually file PSD form 3002 ‘‘Annual Report of
Live Poultry Dealers,’’ OMB control number 0581–
0308. The annual report form is available to public
on the internet at https://www.ams.usda.gov/sites/
default/files/media/PSP3002.pdf.
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Paragraph (a) of final § 201.102
requires live poultry dealers to provide
a true copy of a new contract as well as
a Disclosure Document that is defined
in the remaining paragraphs. When the
new contract is associated with new
housing or changes in the housing live
poultry dealers are also required to
provide a letter of intent that growers
can present to lenders. Paragraph (b) of
the final § 201.102 requires live poultry
dealers to disclose certain terms of the
contract including the live poultry
dealer’s contact information, length of
the term of the agreement offered,
annual minimum number of
placements, and minimum stocking
density. AMS is aware that live poultry
dealers already keep copies of contracts
because AMS commonly reviews
growout contracts on letters of intent
during live poultry dealer compliance
reviews.
Paragraph (c) of final § 201.102
requires live poultry dealers to disclose
a summary of litigation and
bankruptcies in the last 5 years.
Although AMS does not commonly
review records of past bankruptcies or
litigation in live poultry dealer
compliance reviews, courts keep records
of litigation and bankruptcies that
would enable live poultry dealers to
disclose the required summaries.
Paragraph (c) also requires live poultry
dealers to disclose their policies
concerning a number of events that
could occur during the term of the
contract, including increased layout
times; high mortality birds, natural
disasters, weather events, or other
events adversely affecting the physical
infrastructure of the local complex or
the grower facility; depopulation of
birds; feed outages; grower complaints
concerning feed. In the event that the
live poultry has no policy, paragraph (c)
requires the live poultry dealer to
disclose that it has no policy. AMS
commonly reviews the types of policies
in paragraph (c) of final § 201.102, and
AMS expects that live poultry dealers
that have the relevant policies will have
records of them.
Paragraph (d) of final § 201.102
requires records of annual turnover rates
for the last 5 years and annual gross
payments per square foot by complex
and housing type. Current regulations
under the Act generally require live
poultry dealers to retain payment
records for at least 2 years,138 and as
noted below the final rule requires
payment records under final
§ 201.104(a) be retained for 5 years.
Some disclosures required under final
138 Section 401 of the Act and 9 CFR 201.94,
201.95, and 203.4.
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§ 201.102 will inherently necessitate
that the companies keep records
sufficient to produce and substantiate
the disclosure. For example, the dealer
would need to keep the last 5 years of
litigation records to support a disclosure
about its litigation history. As a result,
some live poultry growers may need to
keep payment records for a longer
period of time than they do today, but
AMS experience indicates that most live
poultry dealers already keep the records
for a longer period. Live poultry dealers
keep lists of the growers under contract,
and AMS reviews indicate that most
keep list of growers for at least 5 years.
Paragraph (f) of § 201.102 requires live
poultry dealers to create a governance
framework to ensure the accuracy of the
disclosure documents and paragraph (g)
requires live poultry dealers to keep a
receipt from growers indicating that the
grower received the disclosure
document. The records required in
paragraphs (f) and (g) would be records
that live poultry dealers currently do
not keep. Live poultry dealers will need
to develop new recordkeeping systems
to retain them.
Paragraph (a) of final § 201.104
requires live poultry dealers to retain
payment records for 5 years. Current
regulations require live poultry dealers
to retain records for 2 years. Some live
poultry growers may need to keep
payment records for a longer period of
time as result of the rule, but AMS
experience indicates that most live
poultry dealers already keep the records
for a longer period. The remainder of
final § 201.104 requires live poultry
dealers to disclose information to
poultry growers about flocks placed
with each grower, including when the
flocks are placed and when the live
poultry dealers make payment for
raising the flocks.
Paragraph (b) requires live poultry
dealers to make disclosures when flocks
are placed with the broiler grower.
Paragraph (c) requires live poultry
dealers to make disclosures when the
live poultry dealer makes payment to
the broiler grower. Paragraph (b) and (c)
requires the live poultry dealer to retain
records for each flock of the stocking
density, ratios of the breeds delivered in
the flock, ratios of each sex in the lot if
the live poultry dealers has determined
it, age of the breeder flock, known
health impairments in the breeder flock,
and adjustments that live poultry
dealers make to a grower’s payment
based on any of the disclosed
information. Paragraph (c) also requires
live poultry dealers to disclose the
number feed outages that lasted more
than twelve hours at each grower’s
facility.
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Paragraphs (b) and (c) require live
poultry dealers to maintain the same
type of records that AMS commonly
requests from live poultry dealers
during compliance reviews,139 and are
records that most live poultry dealers
already retain. An exception would be
live poultry dealers that purchase chicks
from outside hatcheries, as they may not
already be retaining records concerning
the breeder flock. The records would be
available from the hatchery, but some
live poultry dealers may have to keep
records that they do not otherwise keep.
Although live poultry dealers will
need to keep considerable amounts of
records to comply with the disclosures
required in final §§ 201.102 and
201.104, live poultry dealers already
retain most of the records necessary.
Live poultry dealers will need to create
relatively few new records beyond those
that they already retain, and AMS
expects that additional costs to live
poultry dealers associated with creating
and maintaining records will be
relatively small.
AMS also estimates the amount of
time that broiler growers would take to
review the information provided to
them by live poultry dealers. Estimates
of the amount of time required by live
poultry dealers to create and distribute
the disclosures and for growers to
review the information were provided
by AMS subject matter experts. These
experts were supervisors and auditors
with many years of experience in
working with growers and with auditing
live poultry dealers for compliance with
the Act. Estimates for the value of the
time are U.S. Department of Labor
(DOL) Bureau of Labor Statistics (BLS)
Occupational Employment and Wage
Statistics (OEWS) released May 2022.140
Occupations used in the estimation
139 AMS routinely conducts reviews of live
poultry dealers for compliance with the Packers and
Stockyards Act and regulations. Some of the
applicable regulations in live poultry compliance
reviews include § 201.43 Payment and accounting
for livestock and live poultry; § 201.49
Requirements regarding scale tickets evidencing
weighing of livestock, live poultry, and feed;
§ 201.71 Scales and or Electronic Evaluation
Devices or Systems; accurate weights and measures,
repairs, adjustments or replacements after
inspection; § 201.73 Scale operators to be qualified;
§ 201.82 Care and promptness in weighing and
handling livestock and live poultry; § 201.95
Inspection of business records and facilities;
§ 201.100 Records to be furnished poultry growers
and sellers; § 201.108–1 Instructions for weighing
live poultry or feed; § 201.211 Undue or
unreasonable preferences or advantages; § 201.215
Suspension of delivery of birds; § 201.216
Additional capital investments criteria; and
§ 201.217 Reasonable period of time to remedy a
breach of contract among others.
140 See U.S. Bureau of Labor Statistics, May 2021
National Occupational Employment and Wage
Estimates, May 2021. https://www.bls.gov/oes/
current/oes_nat.htm#00-0000.
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83273
were Executive Secretaries and
Executive Administrative Assistants
(occupation code 43–6011) for live
poultry dealers’ administrative
assistants, General and Operations
Managers (Occupation code 11–1021)
for live poultry dealers’ managers,
Lawyers (occupation code 23–1011) for
attorneys for live poultry dealers and for
growers, Agricultural Workers
(occupation code 45–2090), Computer
and Information Systems Managers
(occupation code 11–3021), Software
and Web Developers, Programmers, and
Testers (occupation code 15–1250) for
information technology managers,
Accountants and Auditors (occupation
code 13–2011) for accountants for live
poultry dealers, Bookkeeping,
Accounting, and Auditing Clerks
(occupation code 43–3031) for
bookkeepers for live poultry dealers,
and Management Occupations
(occupation code 11–0000) for poultry
growers.
AMS marked up the wages 41.82
percent to account for benefits. This
results in a cost per hour of $41.71
($29.41 × 1.4182) for live poultry
dealers’ administrative assistants,
$84.27 ($59.42 × 1.4182) for live poultry
dealers’ managers, $131.38 ($92.64 ×
1.4182) for attorneys for live poultry
dealers and for growers, $92.91 ($65.51
× 1.4182) for information technology
managers, $56.27 ($39.68 × 1.4182) for
information technology staff, $49.98
($35.24 × 1.4182) for accountants for
live poultry dealers, $27.44 ($19.35 ×
1.4182) for bookkeepers for live poultry
dealers, and $60.70 ($42.80 × 1.4182) for
poultry growers.
Costs of § 201.102
Section 201.102 lists several new
disclosure and recordkeeping
requirements for live poultry dealers
engaged in the production of broilers.
These new and extended requirements
are in additional to those already
included in current § 201.100 that
would create additional costs above the
status quo.
The new provisions in § 201.102
require large live poultry dealers to
disclose a true written copy of the
growing agreement and a new
Disclosure Document any time a live
poultry dealer seeks to renew, revise, or
replace an existing broiler growing
arrangement that does not contemplate
modifications to the existing housing
specifications. Small live poultry
dealers that process less than 2 million
pounds of broilers per week are
excluded from this disclosure
requirement. Before a live poultry dealer
enters a broiler growing arrangement
that would require an original capital
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investment or requires modifications to
existing housing, both large and small
live poultry dealers must provide a copy
of the broiler growing agreement, the
housing specifications, a letter of intent,
and the new Disclosure Document.
The Disclosure Document requires
live poultry dealers to disclose
summaries of litigation over the prior
five years with any broiler growers,
bankruptcy filings, and the live poultry
dealer’s policy regarding a grower’s sale
of the farm or assignment of the
contract.
Live poultry dealers are required to
disclose growers’ variable costs if it
collects the information. Live poultry
dealers are required to establish,
maintain, and enforce a governance
framework that is reasonably designed
to audit the information to ensure
accuracy, ensure compliance with the
Act, and obtain and file signed receipts
certifying that the live poultry dealer
provided the required Disclosure
Document.
Section 201.102 requires live poultry
dealers to include a statement in the
disclosure document describing existing
policies and procedures, as well as any
appeal rights arising from increased layout time; sick, diseased, and high early
mortality flocks; natural disasters,
weather events, or other events
adversely affecting the physical
infrastructure of the local complex or
the grower facility; other events
potentially resulting in massive
depopulation of flocks, affecting grower
payments; feed outages including outage
times; and grower complaints relating to
feed quality, formulation, or suitability.
If no policy and procedures exist, the
live poultry dealer will acknowledge
‘‘no policy exists’’.
The Disclosure Document requires
specific financial disclosures to broiler
growers. The first required disclosure is
a set of tables showing average annual
gross payments in U.S. dollars per farm
facility square foot in each quintile or
mean and standard deviation to broiler
growers for each of the 5 previous years,
organized by housing specification at
each complex. Based on comments
received to the proposed rule, AMS has
provided instructions in the final rule
for calculating average annual gross
payments in each quintile or mean and
standard deviation. The second required
disclosure is a table showing the average
annual broiler grower turnover rates for
the previous calendar year and the
average of the 5 previous calendar years
at a company level and at a local
complex level.
AMS estimates the aggregate one-time
costs of setting up the Disclosure
Document will require 4,128
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management hours, 1,512 legal hours,
1,016 administrative hours, and 1,079
information technology hours costing
$689,000 in the first year for live poultry
dealers to initially review the regulation
and set up the Disclosure
Document.141 142 A more detailed
explanation of the one-time first-year
costs associated with § 201.102 is in
Table 1 in Appendix 1.
AMS expects the ongoing costs of
updating and distributing the Disclosure
Document to growers renewing or
revising existing contracts, new growers
entering into contracts, existing growers
required to make additional capital
investments to require in aggregate
2,061 management hours, 273 legal
hours, 836 administrative hours, and
805 information technology hours to
produce and distribute to growers the
gross payment disclosure information
annually for an aggregate annual cost of
$319,000 to live poultry dealers. AMS
expects the total cost of producing the
annual gross payment disclosure
information to consist of $689,000 in the
first year to set up the systems and
controls, plus $319,000 in costs the first
year and annually thereafter to compile,
distribute, and maintain the disclosure
data and documents. Thus, the first-year
aggregate total costs of § 201.102 to live
poultry dealers are expected to be $1.0
million and then $319,000 annually on
an ongoing basis. A more detailed
explanation of the ongoing costs
associated with § 201.102 is in Table 2
in Appendix 1.
With the exception of signing a
receipt—itself not mandatory—the rule
does not impose any requirement on
broiler growers to review the
information provided by live poultry
dealers. However, to benefit from the
Disclosure Document, growers will need
to review the information provided.
According to AMS subject matter
experts, broiler growers will spend the
most time on their first review of the
Disclosure Document in order to
understand the information and then
spend less time reviewing subsequent
disclosures. For § 201.102 (a)(1), AMS
expects that growers will take about one
hour to review the documents each time
documents are disclosed to them in the
first year. Live poultry dealers
processing fewer than an average of 2
141 Average hourly wage rates used to estimate
dealer costs include a 41.82% markup for benefits
and are as follows: Management—$93.20, Legal—
$113.80, Administrative—$39.69, and Information
Technology—$82.50.
142 The one-time set-up costs are not equal to the
first-year costs of § 201.102 because the first-year
costs include the one-time set-up costs and the
ongoing costs that would be incurred in the first
year as contracts are renewed, revised, or
originated.
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million pounds of broilers weekly will
be exempt from the reporting
requirements, but large live poultry
dealers are required to provide
disclosures to growers for each of
19,417 143 contracts that come up for
renewal in the first year. AMS expects
that 74.71 percent of the contracts will
require renewal in the first year. This
includes all flock-to-flock contract, oneyear contracts, and the portion of the
longer-term contracts that will expire in
the first year. At an hourly wage of
$60.70 AMS expects the requirements
associated with § 201.102 (a)(1) will cost
about $881,000 144 in the aggregate in
the first year. After the first year, as
broiler growers get familiar with the
disclosures, AMS expects growers to
spend less time reviewing the
documents. AMS expects growers to
take about five minutes reviewing each
Disclosure Document for an aggregate
cost of $73,000 145 per year.
For the remaining contracts that will
not be renewed in the first year, AMS
expects that 5 percent of the contracts
will be renewed in each of the next five
years for a yearly cost of $59,000.146
Section 201.102 (a)(2) and (3) will
only apply to broiler growers that are
new entrants requiring an original
capital investment and to broiler
growers making significant capital
improvements. AMS expects that each
of these groups of growers will account
for 5 percent of the 20,000 147 contracts
live poultry dealers reported in their
annual reports to AMS. If growers
require one hour at $60.70 per hour,
growers’ aggregate costs will be
$60,000 148 for reviewing documents
required in § 201.102(a)(2) and an
143 Live poultry dealers processing an average of
more than 2,000,000 pounds of broiler per week,
reported a combined 19,417 broiler contracts in
their fiscal year 2021 annual reports to AMS. All
live poultry dealers are required to annually file
PSD form 3002 ‘‘Annual Report of Live Poultry
Dealers,’’ OMB control number 0581–0308. The
annual report form is available to public on the
internet at https://www.ams.usda.gov/sites/default/
files/media/PSP3002.pdf.
144 1 hour to review each disclosure × $60.70 per
hour × 19,417 contracts × 74.71 percent of the
contracts renewed in the first year = $880,541.
145 1/12 hour to review each disclosure × $60.70
per hour × 19,417 contracts × 74.71 percent of the
contracts renewed in the first year = $73,378.
146 1 hour to review each disclosure × $60.70 per
hour × 19,417 contracts × 5 percent of the contracts
renewed per year = $58,931 per year.
147 Live poultry dealers reported a combined total
of 19,808 contracts for their fiscal year 2021.
Smaller live poultry dealers would not be exempt
from reporting requirements in § 201.102(a)(2) or
(3).
148 1 hour to review each disclosure × $60.70 per
hour × 19,808 contracts × 5 percent of growers that
are new entrants = $60,117.
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additional $60,000 149 for reviewing
documents required in § 201.102(a)(3) in
the first year and in each successive
year.
AMS estimates growers’ aggregate
costs for reviewing and acknowledging
receipt of disclosures associated with
§ 201.102 to be $1.2 million in the
initial year, $253,000 through year five,
and then $194,000 in each succeeding
year.150 The costs will decline after year
five because AMS expects that all
contracts will have been renewed by the
end of year five and that all growers
would have reviewed the Disclosure
Document at least one time by year six.
The Agricultural Census reports that
there were 16,524 contract broiler
growers in the United States in 2017.151
The ten-year total costs of § 201.102 to
all 42 of the affected live poultry dealers
are estimated to be $3.9 million and the
present value (PV) of the ten-year total
costs to be $3.4 million discounted at a
3 percent rate and $2.9 million at a 7
percent rate. The aggregate annualized
costs of the PV of ten-year costs to live
poultry dealers discounted at a 3
percent rate are expected to be $398,000
and $411,000 discounted at a 7 percent
rate.
The ten-year aggregate total costs of
§ 201.102 to broiler growers are
estimated to be $3.2 million and the
present value of the ten-year total costs
to be $2.8 million discounted at a 3
percent rate and $2.5 million at a 7
percent rate. The annualized costs of the
PV of ten-year costs to broiler growers
discounted at a 3 percent rate are
expected to be $331,000 and $351,000
discounted at a 7 percent rate.
The ten-year aggregate total costs of
§ 201.102 to live poultry dealers and
broiler growers are estimated to be $7
million. The present value of the tenyear total costs are estimated to be $6.2
million discounted at a 3 percent rate
and $5.4 million at a 7 percent rate. The
annualized costs of the PV of ten-year
costs to live poultry dealers and broiler
growers discounted at a 3 percent rate
are expected to be $728,000 and
$762,000 discounted at a 7 percent rate.
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Costs of § 201.104
Disclosures that are required in
§ 201.104 are associated with poultry
grower ranking systems. At the time of
broiler placement, § 201.104 requires
149 1 hour to review each disclosure × $60.70 per
hour × 19,808 contracts × 5 percent of growers that
require significant housing upgrades = $60,117.
150 The average hourly wage rate used to estimate
broiler grower costs includes a 41.56% markup for
benefits and is as follows: Management—$70.94.
151 USDA, NASS. 2017 Census of Agriculture:
United States Summary and State Data, (April
2019).
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live poultry dealers to disclose
information about inputs, such as
stocking density, breed and breeder
flock information for each flock placed
with a grower within 24 hours of flock
placement. At the time of settlement, it
requires the live poultry dealer to
disclose information about the housing
specifications for each grower grouped
or ranked during the specified period
and the distribution of inputs to each
grower in each tournament for each
flock settled in the tournament system.
AMS estimates that the live poultry
dealers’ one-time aggregate costs of
reviewing the regulation and developing
the placement and settlement disclosure
documents will require 630
management hours, 462 administrative
hours, and 1,764 information
technology hours costing $236,000 in
the first year to initially set up the
disclosure documents required by
§ 201.104.152 A more detailed
explanation of the one-time first-year
costs associated with § 201.104 is in
Table 3 in Appendix 1.
AMS expects the § 201.104 disclosure
documents will require an additional
2,640 hours divided evenly among
management, administrative, and
information technology staff to produce,
distribute, and maintain the disclosure
documents each year on an ongoing
basis for an aggregate annual cost of
$193,000. A more detailed explanation
of the ongoing costs associated with
§ 201.104 is in Table 4 in Appendix 1.
AMS expects the aggregate cost of
producing the § 201.104 pre-flock
placement and settlement disclosure
documents to consist of $236,000, in the
first year to review the regulation and to
set up the systems and controls, plus
$193,000 in costs the first year and
annually thereafter to compile,
distribute, and maintain the placement
and settlement disclosure documents.
Thus, the aggregate first-year total costs
to live poultry dealers of § 201.104 are
expected to be $429,000 and then
$193,000 annually on an ongoing basis.
Section § 201.104(b) concerns
disclosures of inputs placed with broiler
growers in tournament settlement
systems. Live poultry dealers will be
required to disclose information about
inputs, such as feed, medication, chicks,
etc. for each flock placed with a grower.
AMS expects that, the first time a
grower receives the disclosure, he or she
will require about 10 minutes to review
each of the disclosure’s documents. At
$60.70 per hour, the first disclosure
152 IT staff will be required to modify integrator
information systems to compile information from
past settlements to calculate the information
required to be disclosed to growers.
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83275
document will cost growers
$134,000.153 After reviewing the
documents the first time, AMS expects
that growers will need only 5 minutes
to review successive disclosures.
Because growers average 4.5 flocks per
year, AMS expects that reviewing the
disclosure documents concerning inputs
will cost in the aggregate an additional
$234,000 154 for the remaining 3.5 flocks
in the first year and $301,000 155 for the
4.5 flocks in each successive year.
Section 201.104(c) concerns
disclosures about the group of growers
in settlement groups in tournament
settlement systems. Live poultry dealers
are required to disclose information
about growers in each tournament for
each flock settled in tournament system.
AMS expects that the cost to growers
associated with § 201.104(c) will be
identical to the costs of reviewing the
disclosures required in § 201.104(b).
Aggregate costs would be $134,000 156
for the disclosures reviewed. AMS
expects that reviewing the disclosure
documents will cost an additional
$234,000 157 for the remaining 3.5 flocks
in the first year and $301,000 158 for the
4.5 flocks in each successive year.
AMS estimates growers’ aggregate
costs for reviewing disclosures
associated with § 201.104 to be $736,000
in the first year and $602,000 in each
subsequent year. AMS expects that
broiler growers will spend the most time
on their first review of the placement
and settlement disclosures in order to
understand the information, with less
time for each subsequent review.
The ten-year aggregate total costs of
§ 201.104 to live poultry dealers are
estimated to be $2.2 million and the
present value of the ten-year total costs
to be $1.9 million discounted at a 3
percent rate and $1.6 million at a 7
percent rate. The annualized costs of the
PV of ten-year costs to live poultry
dealers discounted at a 3 percent rate
are expected to be $219,000 and
$224,000 discounted at a 7 percent rate.
153 1/6 hours × $60.70 per hour × 16,524 broiler
growers × 80 percent of broilers raised in
tournament systems = $133,731.
154 1/12 hours × $60.70 per hour × 16,524 broiler
growers × 3.5 additional flocks in the first year ×
80 percent of broilers raised in tournament systems
= $234,029.
155 1/12 hours × $60.70 per hour × 16,524 broiler
growers × 4.5 flocks per year × 80 percent of broilers
raised in tournament systems = $300,894 per year.
156 1/6 hours × $60.70 per hour × 16,524 broiler
growers × 80 percent of broilers raised in
tournament systems = $133,731.
157 1/12 hours × $60.70 per hour × 16,524 broiler
growers × 3.5 additional flocks in the first year ×
80 percent of broilers raised in tournament systems
= $234,029.
158 1/12 hours × $60.70 per hour × 16,524 broiler
growers × 4.5 flocks per year × 80 percent of broilers
raised in tournament systems = $300,894 per year.
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The ten-year aggregated total costs of
§ 201.104 to broiler growers are
estimated to be $6.2 million and the
present value of the ten-year total costs
to be $5.3 million discounted at a 3
percent rate and $4.4 million at a 7
percent rate. The annualized costs of the
PV of ten-year costs to broiler growers
discounted at a 3 percent rate are
expected to be $617,000 and $620,000
discounted at a 7 percent rate.
The costs from § 201.104 are higher
for broiler growers than for live poultry
dealers. There are two reasons for this.
First, the rule only affects 42 live
poultry dealers while it affects 16,524
broiler growers. Secondly, the primary
costs to the live poultry dealers are the
development of the placement and
settlement disclosures, while the
ongoing costs to distribute and maintain
them are relatively small. Each broiler
grower would receive and review both
a placement and settlement disclosure
for each flock placed and then settled in
each tournament. Thus, there are many
broiler growers who would receive and
review the placement and settlement
disclosures with each flock every year,
which explains the higher cost relative
to live poultry dealers. The relative
higher cost to the broiler growers would
be more than offset by the benefits of the
extra information they can use to make
financial business decisions. The
benefits will be discussed in a later
section.
The ten-year aggregate total costs of
§ 201.104 to live poultry dealers and
broiler growers are estimated to be $8.3
million and the present value of the tenyear total costs to be $7.1 million
discounted at a 3 percent rate and $5.9
million at a 7 percent rate. The
annualized aggregate costs of the PV of
ten-year costs to live poultry dealers and
broiler growers discounted at a 3
percent rate are expected to be $836,000
and $844,000 discounted at a 7 percent
rate.
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Combined Costs of §§ 201.102 and
201.104
Combined costs to live poultry dealers
for §§ 201.102 and 201.104 are expected
to be $1.4 million in the first year, and
$512,000 in subsequent years. These
combined costs are also reported above
the Paperwork Reduction Act section as
the combined costs to live poultry
dealers for compliance with the
reporting and recordkeeping
requirements of §§ 201.102 and 201.104.
The combined costs for broiler growers
are expected to be $1.9 million in the
first year, $854,000 in years two through
five, and $795,000 after year five on an
ongoing basis.
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Jkt 262001
The ten-year aggregate combined costs
of §§ 201.102 and 201.104 to live
poultry dealers are estimated to be $6.0
million and the present value of the tenyear total costs to be $5.3 million
discounted at a 3 percent rate and $4.5
million at a 7 percent rate. The
annualized aggregate combined costs of
the PV of ten-year costs to live poultry
dealers discounted at a 3 percent rate
are expected to be $617,000 and
$635,000 discounted at a 7 percent rate.
The ten-year aggregate combined costs
of §§ 201.102 and 201.104 to broiler
growers are estimated to be $9.3 million
and the present value of the ten-year
total costs to be $8.1 million discounted
at a 3 percent rate and $6.8 million at
a 7 percent rate. The annualized
aggregate combined costs of the PV of
ten-year costs to broiler growers
discounted at a 3 percent rate are
expected to be $948,000 and $971,000
discounted at a 7 percent rate. The costs
to broiler growers from §§ 201.102 and
201.104 are higher for broiler growers
than live poultry dealers for the reasons
discussed above.
The ten-year aggregate combined costs
of §§ 201.102 and 201.104 to live
poultry dealers and broiler growers are
estimated to be $15.4 million and the
present value of the ten-year aggregate
combined costs to be $13.3 million
discounted at a 3 percent rate and $11.3
million at a 7 percent rate. The
annualized aggregate costs of the PV of
ten-year costs to live poultry dealers and
broiler growers discounted at a 3
percent rate are expected to be $1.6
million and $1.6 million discounted at
a 7 percent rate.
Benefits of §§ 201.102 and 201.104
As discussed above, AMS will
estimate the industry benefits from
§§ 201.102 and 201.104 in two parts,
one quantifiable and the other nonquantifiable. For the quantifiable part,
AMS will provide a minimum value of
the combined benefit to broiler growers
from the additional information in the
disclosures required under §§ 201.102
and 201.104 and will refer to this
minimum benefit as Gmin. AMS first
estimates Gmin and discusses the nonquantifiable benefits of the final rules
immediately below and after the
discussion of the benefit estimates.
Poultry growers are expected to
benefit from the information in two
ways. First, growers will benefit as live
poultry dealers lose some potential
market power. Second, the Disclosure
Documents will provide growers more
information on their anticipated
revenue variability than they currently
have, which will assist in supporting
future income projections. This
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additional information can give growers
greater economic and financial
certainty. While the economic literature
does not address the relationship
between asymmetric information and
market power in the relationship among
broiler growers and live poultry dealers,
or in any directly analogous
relationships, firms with information
that other market participants do not
have can command considerable
monopoly and monopsony power.159 As
an example of the monopsony power of
information, imperfect information in
the market about an employee’s training
level limits the wages that a trained
worker can obtain in the outside market,
and it gives monopsony power to the
employer that supported the training.160
This concept extends to the grower-live
poultry dealer relationship, substituting
for training the marketing and
production information about the
contract grower that one live poultry
dealer possesses but which is not
available to other live poultry dealers,
thus lowering the open market value of
the grower’s services. Further, in this
example the grower has limited
information on returns to other growers
in their market due to the live poultry
dealer’s ability to shield this
information. Thus, it is more difficult
for the grower to make business
decisions such as choosing whether to
deal with the current live poultry dealer
or sign a contract with another live
poultry dealer, should one be available
in the region.
In an example of large grain traders
that have oligopsony and oligopoly
market power, one analysis finds that
large grain traders manipulate prices
and market information.161 The analysis
contends that these major firms move
prices to their benefit by taking
advantage of information they alone
possess, e.g., information on foreign
subsidiaries, contract positions, the
price-reporting system, export data, and
commodity exchanges. Likewise, live
poultry dealers have information they
alone possess and can use to their
advantage.
In a third example specific to broiler
contracting, but with information
exchange not being explicitly addressed,
live poultry dealers will have
monopsony-oligopsony power in a
159 Allen, B. 1990. ‘‘Information as an Economic
Commodity,’’ American Economic Review, Vol.
80:2, pages 268–273.
160 Acemoglu, D. and J Piskchke. 1998. ‘‘Why do
Firms Train? Theory and Evidence,’’ Quarterly
Journal of Economics Vol 113(1):79–119.
161 See Perloff, J., and G. Rausser. 1983. ‘‘The
Effect of Asymmetrically Held Information and
Market Power in Agricultural Markets’’, American
Journal of Agricultural Economics Vol 65(2): 366–
372.
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given geographical area to the extent
that growers have limited opportunity to
contract with other live poultry dealers.
Grower capital investments (poultry
housing and specialized equipment)
have little use outside of raising
broilers. Being aware of the possibility
that they may be held-up by live poultry
dealers, growers will sub-optimally
invest in specific assets.162 Implicitly
then, knowledge of the possibility that
they will be held-up will affect the
growers’ capital investment decisions.
If the market were less oligopsonistic,
with live poultry dealers facing more
competition between themselves for
growers, individual live poultry dealers
would have to make a case for why
growers should grow for them rather
than for competing live poultry dealers.
In the extreme case of perfect
competition, all price and other market
information is known by all
participants. While the nature of the
broiler market means full competition
and hence full market information
cannot be achieved, the Disclosure
Document does include the grower
turnover rates and quintiles of average
annual gross payment per square foot
for the calendar year for the complex.
Absent the Disclosure Document from
the live poultry dealer, the typical
grower is unlikely to have this market
information. With this information, the
grower can make more informed
business decisions, including whether
to move to another live poultry dealer
upon contract completion, thus
lowering the current live poultry
dealer’s market power, at least when
alternative live poultry dealers are
available. The information on grower
turnover rates from the Disclosure
Document should give the grower a
better idea of their probability of being
held-up, thus better informing their
capital investment decisions. While
lowering information asymmetry
increases benefits to growers, live
poultry dealers will suffer losses by
losing market power.
AMS does not have the data necessary
for estimating the economic impacts of
a loss of market power on the part of
live poultry dealers due to information
transfer nor the benefits to growers.
However, according to basic economic
principles, increasing competition—i.e.,
reducing the market power advantage of
a buyer or seller—leads to increases in
economic efficiency in the market.
Based on these principles, we expect
that a reduction in dealer market power
would, if it occurs, result in net
economic benefits. AMS also expects
the grower to benefit simply from
having more information on the
potential variability of returns, even if
average returns do not change.
According to economic principles of
expected utility, a risk averse producer
will benefit economically from a
reduction in revenue variability.163
Purely addressing information
exchange, the live poultry dealer is not
losing the information it supplies the
grower via the Disclosure Document.
The live poultry dealer’s quantified
costs are associated with creating the
Disclosure Document.
The act of supplying past revenue
information in the disclosures may alter
the statistical distribution of revenue the
grower thinks they will face (including
statistics that describe the distribution,
such as mean and variance), mostly
likely increasing expected mean
revenues. By simply having more
market information (e.g., the revenue
quintiles from the Disclosure
Document), presumably the grower will
be able to place a smaller variability on
their projected revenue than they would
with less information. If they are risk
averse, by the principle of expected
utility, they will receive an economic
benefit from being able to place a lower
variability on his projected revenue.
AMS estimates Gmin as the combined
benefits to growers of §§ 201.102 and
201.104 from the reduction in profit
uncertainty due to obtaining the
revenue information from the Disclosure
Document. AMS expects the majority of
the benefits of reduced profit
uncertainty will result from additional
information in the financial disclosures
162 Vukina, Tom, and Porametr Leegomonchai.
‘‘Oligopsony Power, Asset Specificity, and HoldUp: Evidence from the Broiler Industry.’’ American
Journal of Agricultural Economics 88 (2006).
163 Garcia, P., B. Adam, and R. Hauser. 1994. The
Use of Mean-Variance for Commodity Futures and
Options Hedging Decisions’’, Journal of Agricultural
and Resource Economics, 19(1): 32–45.
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83277
under § 201.102 as these disclosures
provide revenue projections at different
performance percentiles over different
housing types. AMS expects that the
additional information received in
placement and settlement disclosures
under § 201.104 regarding the effects of
input variability on revenue variability
will also result in reduced profit
uncertainty, though to a lesser extent
than the financial disclosures. AMS was
not able to allocate the benefits between
§§ 201.102 and 201.104 and presents
just the total combined minimum
quantifiable benefits of both rules.
Given assumptions about the level of
risk aversion of the producer, the
distribution of a contract grower’s
revenue, and the grower’s utility
function,164 it is possible to calculate a
grower’s benefits of decreased revenue
uncertainty associated with greater
transparency. AMS relied on an
empirical approach to estimate the
minimum benefits, defined as a Risk
Premium (RP), to contract broiler
growers of a range of reductions in the
variability of their net revenue.165
The following table presents the Gmin
benefit estimates based on RP estimates
for the first year for several scenarios of
reduction in the variability of net
revenue and two assumptions for a risk
aversion premium (RAP) and two
assumptions for how risk aversion
changes with wealth. For the latter,
constant absolute risk aversion (CARA)
assumes that the grower’s risk aversion
does not change as wealth increases.
Decreasing absolute risk aversion
(DARA) assumes the grower’s risk
aversion increases as wealth decreases.
Another possibility is that the grower’s
risk aversion is increasing with wealth
(IARA). While no evidence exists one
way or another for how the risk
preference of broiler contract growers
changes with wealth, the agricultural
economics literature generally assumes
DARA over IARA.
164 A utility function is an economic concept that
measures an individual’s preferences over a set of
goods and services.
165 AMS prepared a technical appendix
(Appendix 2) that provides an explanation of the
empirical approach used to estimate the Risk
Premium and is included at the end of this
document.
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TABLE 2—MINIMUM QUANTIFIABLE BENEFITS, Gmin, (RISK PREMIUM) TO CONTRACT GROWERS OF REDUCTIONS IN NET
REVENUE VARIABILITY
Reduction in coefficient of variation of
net revenue b
Grower risk aversion
(risk aversion premium)
1%
2%
5%
10%
One year value
Moderate (20%) ...............................................................................................
High (40%) .......................................................................................................
DARA, High/Moderate .....................................................................................
$1,350,000
3,210,000
1,839,000
$2,690,000
6,380,000
3,655,000
$6,610,000
15,700,000
8,966,000
$12,840,000
30,540,000
17,365,000
PV over 10 years discounted at 3%
Moderate (20%) ...............................................................................................
High (40%) .......................................................................................................
11,515,774
27,381,951
22,946,246
54,422,694
56,384,641
133,924,185
109,527,804
260,512,395
PV over 10 years discounted at 7%
Moderate (20%) ...............................................................................................
High (40%) .......................................................................................................
9,481,835
22,545,697
18,893,434
44,810,450
46,425,874
110,270,230
90,182,787
214,500,180
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a The risk aversion premium (RAP) varies between 0 and 100 percent of the potential lost revenue, with higher values reflecting higher risk
aversion. A value of 20 percent is considered a reasonable reflection of moderate aversion to risk and 40 percent being reflection of high-risk
aversion.
b The coefficient of variation of net revenue is a standardized measure of variability, and is defined as the standard deviation of net revenue divided by its mean.
The RAP varies between 0 and 100
percent of the potential lost revenue,
with higher values reflecting higher risk
aversion. The RP estimates assume that
mean net returns are unchanged, i.e.,
this exercise is solely valuing the
reduction in grower revenue
uncertainty. AMS estimates benefits
under two CARA scenarios, one where
the growers have moderate risk
aversion, with one with a RAP of 20
percent and a high RAP of 40 percent,
using contract producer revenue data for
2020. The parameters used for the
DARA scenario are chosen such that the
grower has a RAP of 40 percent when
wealth is zero, and a RAP of 20 percent
at mean wealth.
As the above table shows, one-year
benefits range from $1.4 million with a
1 percent reduction in the variability of
net revenue when moderate risk
aversion is assumed to $31 million with
a 10 percent reduction in the variability
of net revenue when high risk aversion
is assumed. AMS assumes growers will
receive the same benefit of reduced
variability of net revenue every year in
which they contract. Discounting these
annual values over ten years leads to a
range in benefit estimates from $9.5
million to $261 million depending on
the combination of risk aversion
assumption, reduction in variability in
net returns, and the discount rate.
With assumptions of moderate risk
aversion and that the rule would lead to
a two percent reduction in the
coefficient of variation in net revenue,
the benefit estimate is $19 million with
a discount rate of seven percent PV. The
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analysis summarized in Table 2 assumes
that the grower maximizes an absolute
risk aversion (ARA) utility function,
whether CARA or DARA. The
alternative to an ARA function is a
relative risk aversion function (RRA)
(see Appendix 2 for a discussion of ARA
and RRA).
As discussed above, §§ 201.102 and
201.104 have additional, other nonquantified benefits to the industry,
referred to as BO. First, if broiler growers
did not expect to receive at least as
much in benefits as it takes in time to
review the disclosures, they would not
review them. Some of these benefits are
captured in the quantitative estimates of
the value of reduction in revenue
uncertainty, but there are others benefits
the growers would likely expect from
these disclosures. The other benefits
would arise from a reduction in risk of
retaliation and the potential for fraud
and deception by live poultry dealers.
The additional information to growers
may lead to a more optimal allocation
of capital and labor resources (such as
increased capital investment through
the reduction in perceived hold-up risk,
and more informed decisions on
whether and with whom to enter into a
growing arrangement), leading to
improved efficiencies across the entire
industry.
The combined minimum benefits for
broiler growers, Gmin, from reduced
revenue uncertainty are expected to be
$2.7 million in the first year and on an
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ongoing basis.166 The ten-year total
minimum benefits of §§ 201.102 and
201.104 to broiler growers are estimated
to be $26.9 million and the present
value of the ten-year total minimum
benefits to be $22.9 million discounted
at a 3 percent rate and $18.9 million at
a 7 percent rate. The annualized PV of
ten-year minimum benefits to broiler
growers discounted at 3 and 7 percent
rates are expected to be $2.7 million.
The total benefits to the industry, BT,
from §§ 201.102 and 201.104 would be
the sum of the minimum benefits to all
growers, Gmin, and the other nonquantified benefits to the industry from
growers’ risk reductions and a more
efficient allocation of labor and capital,
BO. The values appear in Table 3 in the
next section. AMS expects the total
benefits to the industry from the rule—
as is the case for total costs, noted
above—will be very small in relation to
the total value of industry production.
Chicken sales in the U.S. for 2019
were approximately $58.6 billion. Total
quantified cost of §§ 201.102 and
201.104 is estimated to be greatest in the
first year at $3.4 million, or 0.0006
percent of revenues. A relatively small
improvement in efficiency from
improved allocation of capital and labor
resources in the industry would more
than outweigh the cost of this rule.
166 All benefits estimates assume a moderate (20
percent) RAP and a 2 percent reduction in
coefficient of variation of net revenue.
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Total Quantified Combined Costs and
Benefits of §§ 201.102 and 201.104
The cost and benefit estimates of
§§ 201.102 and 201.104 presented above
appear in the following table.
TABLE 3—QUANTIFIABLE COSTS AND BENEFITS 167 OF §§ 201.102 AND 201.104
Cost
Preferred alternative
Live poultry
dealers
§ 201.102:
First-Year ......................................................................
Ten-Year Total ..............................................................
PV of Ten-Year Discounted at 3 Percent .....................
PV of Ten-Year Discounted at 7 Percent .....................
PV of Ten-Year Annualized at 3 Percent .....................
PV of Ten-Year Annualized at 7 Percent .....................
§ 201.104:
First-Year ......................................................................
Ten-Year Total ..............................................................
PV of Ten-Year Discounted at 3 Percent .....................
PV of Ten-Year Discounted at 7 Percent .....................
PV of Ten-Year Annualized at 3 Percent .....................
PV of Ten-Year Annualized at 7 Percent .....................
§§ 201.102 and 201.104:
First-Year ......................................................................
Ten-Year Total ..............................................................
PV of Ten-Year Discounted at 3 Percent .....................
PV of Ten-Year Discounted at 7 Percent .....................
PV of Ten-Year Annualized at 3 Percent .....................
PV of Ten-Year Annualized at 7 Percent .....................
a AMS
Benefits
Individual
grower
(Gmin) a
Total
industry
(BT)
Broiler
growers
Industry
total
$1,008,000
3,881,000
3,392,000
2,886,000
398,000
411,000
$1,180,000
3,158,000
2,822,000
2,468,000
331,000
351,000
$2,188,000
7,039,000
6,214,000
5,354,000
728,000
762,000
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
+
+
+
+
+
+
BO
BO
BO
BO
BO
BO
429,000
2,162,000
1,872,000
1,573,000
219,000
224,000
736,000
6,152,000
5,263,000
4,352,000
617,000
620,000
1,164,000
8,314,000
7,135,000
5,925,000
836,000
844,000
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
+
+
+
+
+
+
BO
BO
BO
BO
BO
BO
1,437,000
6,043,000
5,264,000
4,459,000
617,000
635,000
1,916,000
9,310,100
8,085,000
6,820,000
948,000
971,000
3,353,000
15,353,000
13,349,000
11,279,000
1,565,000
1,606,000
2,690,000
26,900,000
22,946,000
18,893,000
2,690,000
2,690,000
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
+
+
+
+
+
+
BO
BO
BO
BO
BO
BO
estimates Gmin as the combined benefits to growers of §§ 201.102 and 201.104.
do not include unquantified costs of risk increases.
b Estimates
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The quantified costs and minimum
quantifiable benefits to the industry in
the first year are $3.4 million and $2.7
million, respectively. The quantified
costs exceed the minimum quantifiable
benefits in the first year only. The
minimum quantifiable benefits exceed
the quantified costs in the ten-year total,
the PVs on the ten totals, the annualized
PV of ten-year totals. This is a function
of quantified costs being higher at the
beginning of the program and falling off
over time while the quantified benefits
remain constant over the entire
estimation period.
AMS expects that the net benefits to
the industry from §§ 201.102 and
201.104 will be very small in relation to
the total value of industry production.
Thus, AMS expects the impacts of the
net benefits on total industry supply to
be immeasurably small, leading to
immeasurably small indirect effects on
industry supply and demand, including
price and quantity effects.
Costs and Benefits of the Small Business
Exemption Alternative
AMS estimated costs and benefits for
an alternative to the preferred option for
167 Ibid.
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the rule. It would be the same as
§§ 201.102 and 201.104, with the
exception that the alternative would
exempt live poultry dealers that process
less than 2 million pounds of broilers
per week from all provisions of the two
final rules. In the preferred alternative,
small businesses would be exempt from
the disclosure requirements in
§ 201.102(a)(1) only. The rest of the
provisions of §§ 201.102 and 201.104
would still apply.
The costs associated with this
alternative are similar, but smaller than
the preferred option. According to
annual reports that live poultry dealers
file with AMS,168 small live poultry
dealers processing broilers make up 35.7
percent of all live poultry dealers but
have only 2 percent of broiler growing
contracts. The estimation of the costs
and benefits of the small business
exemption alternative will follow the
same format as the preferred alternative.
168 All live poultry dealers are required to
annually file PSD form 3002 ‘‘Annual Report of
Live Poultry Dealers,’’ OMB control number 0581–
0308. The annual report form is available to public
on the internet at https://www.ams.usda.gov/sites/
default/files/media/PSP3002.pdf.
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Costs of § 201.102—Small Business
Exemption Alternative
AMS estimates the one-time costs for
live poultry dealers of setting up the
Disclosure Document for the small
business exemption alternative would
require 2,914 management hours, 972
attorney hours, 722 administrative
hours, and 884 information technology
hours costing $486,000 in the first year
for live poultry dealers to set up the
Disclosure Document.169 A more
detailed explanation of the one-time
first-year costs associated with the
alternative § 201.102 is in Table 1 in
Appendix 3.
AMS expects the ongoing costs for
live poultry dealers for the small
business exemption alternative of
updating and distributing the Disclosure
Document to broiler growers renewing
or revising existing contracts, new
growers entering into contracts, existing
growers required to make additional
capital investments to require 1,617
management hours, 176 legal hours, 726
169 As discussed previously, the one-time set-up
costs are not equal to the first-year costs of
§ 201.102 because the first-year costs include the
one-time set-up costs and the ongoing costs that
would be incurred in the first year as contracts are
renewed, revised, or originated.
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administrative hours, and 733
information technology hours to
produce, distribute to growers, and
maintain the Disclosure Document
annually for an annual cost of $258,000.
A more detailed explanation of the
ongoing costs associated with the
alternative § 201.102 is in Table 2 in
Appendix 3.
AMS expects the total cost of
producing the disclosure information to
be $486,000 in the first year to set up
the systems and controls, plus $258,000
in costs the first year and annually
thereafter to compile and distribute the
disclosure data and documents. Thus,
the first-year total costs of § 201.102 for
live poultry dealers are expected to be
$743,000 for the small business
exemption alternative and then
$258,000 annually on an ongoing basis.
For alternative § 201.102(a)(1), AMS
expects that broiler growers would take
about 1 hour to review the documents
each time documents are disclosed to
them in the first year. The alternative
would exempt live poultry dealers
processing fewer than an average of 2
million pounds of broilers weekly from
the reporting requirements, but large
live poultry dealers would be required
to provide disclosures to broiler growers
for each of 19,417 170 contracts that
come up for renewal in the first year.
AMS expects that 74.71 percent of the
contracts will require renewal in the
first year. This includes all flock-toflock contracts, one-year contracts, and
the portion of the longer-term contracts
that will expire in the first year. At a
wage of $60.70, AMS expects the
requirements associated with § 201.102
(a)(1) will cost broiler growers about
$881,000 171 in the first year in the
aggregate. After the first year, as broiler
growers get familiar with the
disclosures, AMS expects growers to
spend less time reviewing the
documents. AMS expects broiler
growers to take about five minutes
reviewing each Disclosure Document for
an aggregate cost of $73,000 172 per year.
For the remaining contracts that will
not be renewed in the first year, AMS
expects that 5 percent of the contracts
170 Live poultry dealers processing an average of
more than 2,000,000 pounds of broilers per week,
reported a combined 19,417 broiler contracts in
their fiscal year 2021 annual reports to AMS. All
live poultry dealers are required to annually file
PSD form 3002 ‘‘Annual Report of Live Poultry
Dealers,’’ OMB control number 0581–0308. The
annual report form is available to public on the
internet at https://www.ams.usda.gov/sites/default/
files/media/PSP3002.pdf.
171 1 hour to review each disclosure × $60.70 per
hour × 19,417 contracts × 74.71 percent of the
contracts renewed in the first year = $880,541.
172 1/12 hour to review each disclosure × $60.70
per hour × 19,417 contracts × 74.71 percent of the
contracts renewed in the first year = $73,386.
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will be renewed in each of the next 5
years for a yearly cost of $59,000.173
Paragraphs 201.102(a)(2) and (3)
would only apply to broiler growers that
are new entrants with original capital
investments and to growers making
significant upgrades with additional
capital investments to broiler houses.
AMS expects that each of these groups
of broiler growers will account for 5
percent of the 19,417 broiler growing
contracts live poultry dealers reported
in their annual reports 174 to AMS. If
growers require one hour at $60.70 per
hour, growers’ aggregate costs would be
$59,000 175 for reviewing documents
required in § 201.102 (a)(2) and an
additional $59,000 176 for reviewing
documents required in § 201.102 (a)(3)
in the first year and in each successive
year.
AMS estimates broiler growers’
aggregate costs for reviewing the
Disclosure Document associated with
§ 201.102 for the small business
exemption alternative to be $1.2 million
in the initial year, $250,000 through
year five, and then $191,000 in each
succeeding year.
The ten-year aggregate total costs for
the live poultry dealers of § 201.102 for
the small business exemption
alternative are estimated to be $3.1
million. The present value of the tenyear aggregate total costs of § 201.102 to
live poultry dealers are estimated to be
$2.7 million discounted at a 3 percent
rate and $2.3 million at a 7 percent rate.
The annualized aggregate costs of the
PV of ten-year costs to live poultry
dealers discounted at a 3 percent rate
are expected to be $313,000 and
$322,000 discounted at a 7 percent rate.
The ten-year aggregate total costs to
broiler growers of § 201.102 for the
small business exemption alternative
are estimated to be $3.1 million. The
present value of the ten-year total costs
of § 201.102 to broiler growers are
estimated to be $2.8 million discounted
at a 3 percent rate and $2.4 million at
a 7 percent rate. The annualized
aggregate costs of the PV of ten-year
costs to broiler growers discounted at a
3 percent rate are expected to be
173 1 hour to review each disclosure × $60.70 per
hour × 19,417 contracts × 5 percent of the contracts
renewed per year = $58,929 per year.
174 All live poultry dealers are required to
annually file PSD form 3002 ‘‘Annual Report of
Live Poultry Dealers,’’ OMB control number 0581–
0308. The annual report form is available to public
on the internet at https://www.ams.usda.gov/sites/
default/files/media/PSP3002.pdf.
175 1 hour to review each disclosure × $60.70 per
hour × 19,417 contracts × 5 percent of growers that
are new entrants = $58,929.
176 1 hour to review each disclosure × $60.70 per
hour × 19,417 contracts × 5 percent of growers that
require significant housing upgrades = $58,929.
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$328,000 and $349,000 discounted at a
7 percent rate.
The first-year aggregate total costs to
broiler growers and live poultry dealers
of § 201.102 for the small business
exemption alternative are estimated to
be $1.9 million and the ten-year
aggregate total costs of § 201.102 for the
small business exemption alternative for
live poultry dealers and broiler growers
are estimated to be $6.2 million. The
present value of the ten-year aggregate
total costs of § 201.102 to live poultry
dealers and broiler growers are
estimated to be $5.5 million discounted
at a 3 percent rate and $4.7 million at
a 7 percent rate. The annualized costs of
the PV of ten-year aggregate costs to live
poultry dealers and broiler growers
discounted at a 3 percent rate are
expected to be $641,000 and $671,000
discounted at a 7 percent rate.
Costs of § 201.104—Small Business
Exemption Alternative
AMS estimates that the aggregate onetime costs of developing the placement
and settlement disclosure documents for
live poultry dealers under the small
business exemption alternative would
require 405 management hours, 297
administrative hours, and 1,134
information technology hours costing
$152,000 in the first year to initially set
up the placement and settlement
disclosure documents. A more detailed
explanation of the one-time first-year
costs associated with the alternative
§ 201.104 is in Table 3 in Appendix 3.
AMS expects the disclosure
documents to require an additional
1,697 hours divided evenly among
management, administrative, and
information technology staff to produce,
distribute, and maintain the disclosure
documents each year on an ongoing
basis for an annual cost of $124,000.
Thus, the aggregate first-year costs are
estimated to be $276,000, including the
one-time set up costs and the costs of
producing and distributing the
placement and settlement disclosures. A
more detailed explanation of the
ongoing costs associated with the
alternative § 201.104 is in Table 4 in
Appendix 3.
For the alternative § 201.104(b), live
poultry dealers would be required to
disclose information about inputs, such
as stocking density, breed and breeder
flock information for each flock placed
with a grower. AMS expects that, the
first time a broiler grower receives the
disclosure, he or she would require
about 10 minutes to review each of the
disclosure’s documents. At $60.70 per
hour, the first disclosure document
would cost growers $86,000 in the
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aggregate.177 After the reviewing the
documents the first time, AMS expects
that broiler growers would only need 5
minutes to review successive
disclosures. Since growers average 4.5
flocks per year, AMS expects that
reviewing the disclosure documents
concerning inputs would cost an
additional $150,000 178 for the
remaining 3.5 flocks in the first year and
$193,000 179 for the 4.5 flocks in each
successive year.
Alternative § 201.104(c) concerns
disclosures about the group of broiler
growers in settlement groups in broiler
tournament settlement systems. Live
poultry dealers would be required to
disclose information about the housing
specifications for each grower grouped
or ranked during the specified period
and the distribution of inputs to each
grower in each tournament for each
flock settled in tournament system.
AMS expects that the cost to broiler
growers associated with § 201.104(c)
will be identical to the costs of
reviewing the disclosures required in
§ 201.104(b). Aggregate costs would be
$86,000.180 for the disclosures reviewed.
AMS expects that reviewing the
disclosure documents would cost, in the
aggregate, an additional $150,000 181 for
the remaining 3.5 flocks in the first year
and $193,000 182 for the 4.5 flocks in
each successive year.
AMS estimates growers’ aggregate
costs for reviewing the placement and
settlement disclosures associated with
§ 201.104 under the small business
exemption alternative to be $473,000 in
the first year and $387,000 in each
subsequent year. As discussed
previously, AMS expects that broiler
177 1/6 hours × $60.70 per hour × 16,524 broiler
growers × 80 percent of broilers raised in
tournament systems × 64.3 percent of live poultry
dealers that process more than 2,000,000 head per
week = $85,970.
178 1/12 hours × $60.70 per hour × 16,524 broiler
growers × 3.5 additional flocks in the first-year × 80
percent of broilers raised in tournament systems ×
64.3 percent of live poultry dealers that process
more than 2,000,000 head per week = $150,447.
179 1/12 hours × $60.70 per hour × 16,524 broiler
growers × 4.5 flocks per year × 80 percent of broilers
raised in tournament systems × 64.3 percent of live
poultry dealers that process more than 2,000,000
head per week = $193,432 per year.
180 1/6 hours × $60.70 per hour × 16,524 broiler
growers × 80 percent of broilers raised in
tournament systems × 64.3 percent of live poultry
dealers that process more than 2,000,000 head per
week = $85,970.
181 1/12 hours × $60.70 per hour × 16,524 broiler
growers × 3.5 additional flocks in the first-year × 80
percent of broilers raised in tournament systems ×
64.3 percent of live poultry dealers that process
more than 2,000,000 head per week = $150,447.
182 1/12 hours × $60.70 per hour × 16,524 broiler
growers × 4.5 flocks per year × 80 percent of broilers
raised in tournament systems × 64.3 percent of live
poultry dealers that process more than 2,000,000
head per week = $193,432 per year.
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growers would spend the most time on
their first review of the placement and
settlement disclosures in order to
understand the information, with less
time for each subsequent review.
The ten-year aggregate total costs to
live poultry dealers of § 201.104 under
the small business exemption
alternative are estimated to be $1.4
million. The present value of the
aggregate ten-year total costs of
§ 201.104 to live poultry dealers are
estimated to be $1.2 million discounted
at a 3 percent rate and $1.0 million at
a 7 percent rate. The annualized costs of
the PV of aggregate ten-year costs to live
poultry dealers discounted at a 3
percent rate are expected to be $141,000
and $144,000 discounted at a 7 percent
rate.
The ten-year aggregate total costs to
broiler growers of § 201.104 for the
small business exemption alternative
are estimated to be $4.0 million. The
present value of the aggregate ten-year
total costs of § 201.104 to broiler
growers are estimated to be $3.4 million
discounted at a 3 percent rate and $2.8
million at a 7 percent rate. The
annualized aggregate costs of the PV of
ten-year costs to broiler growers
discounted at a 3 percent rate are
expected to be $397,000, and $398,000
discounted at a 7 percent rate.
The first-year aggregate total costs to
live poultry dealers and broiler growers
of § 201.104 under the small business
exemption alternative are estimated to
be $749,000 and the ten-year aggregate
total costs are estimated to be $5.3
million. The present value of the tenyear aggregate total costs of § 201.104 to
live poultry dealers and broiler growers
are estimated to be $4.6 million
discounted at a 3 percent rate and $3.8
million at a 7 percent rate. The aggregate
annualized costs of the PV of ten-year
costs to live poultry dealers and broiler
growers discounted at a 3 percent rate
are expected to be $538,000 and
$542,000 discounted at a 7 percent rate.
Combined Costs of §§ 201.102 and
201.104—Small Business Exemption
Alternative
Aggregate combined costs to live
poultry dealers for §§ 201.102 and
201.104 for the small business
exemption alternative are expected to be
$1.0 million in the first year, and
$381,000 in subsequent years. The
combined costs for broiler growers are
expected to be $1.6 million in the first
year, $637,000 in years two through
five, and $578,000 after year five on an
ongoing basis.
The aggregate ten-year combined
quantified costs to live poultry dealers
of §§ 201.102 and 201.104 for the small
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83281
business exemption alternative are
estimated to be $4.5 million and the
present value of the ten-year combined
costs are $3.9 million discounted at a 3
percent rate and $3.3 million at a 7
percent rate. The aggregate annualized
costs of the PV of ten-year costs to live
poultry dealers discounted at a 3
percent rate are expected to be $454,000
and $466,000 discounted at a 7 percent
rate.
The aggregate ten-year combined costs
to broiler growers of §§ 201.102 and
201.104 for the small business
exemption alternative are estimated to
be $7.1 million and the present value of
the ten-year combined costs are
estimated to be $6.2 million discounted
at a 3 percent rate and $5.2 million at
a 7 percent rate. The aggregate
annualized costs of the PV of ten-year
costs to broiler growers discounted at a
3 percent rate are expected to be
$725,000 and $747,000 discounted at a
7 percent rate. As under the preferred
alternative, the costs to broiler growers
from §§ 201.102 and 201.104 under the
small business exemption alternative
would be higher for broiler growers than
live poultry dealers for the reasons
discussed above.
The aggregate combined costs to live
poultry dealers and broiler growers of
§§ 201.102 and 201.104 under the small
business exemption alternative are
estimated to be $2.7 million in the first
year, $1.0 million in years two through
five, and $960,000 in years six and
beyond. The aggregate ten-year
combined costs of §§ 201.102 and
201.104 for the small business
exemption alternative for live poultry
dealers and broiler growers are
estimated to be $11.5 million and the
present value of the ten-year combined
costs are estimated to be $10.1 million
discounted at a 3 percent rate and $8.5
million at a 7 percent rate. The aggregate
annualized costs of the PV of ten-year
costs to live poultry dealers and broiler
growers discounted at a 3 percent rate
are expected to be $1.2 million and $1.2
million discounted at a 7 percent rate.
Additionally, there may be costs of
bearing increased risk that AMS has not
estimated of increasing transparency in
broiler grower contracting and
tournaments, which would have
different effects on more or less
diversified live poultry dealers.
Combined Benefits of §§ 201.102 and
201.104—Small Business Exemption
Alternative
According to PSD records, only 2
percent of broiler growing contracts are
between small live poultry dealers and
broiler growers. Thus, 98 percent of all
broiler growers will receive the benefits
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of §§ 201.102 and 201.104 under the
small business exemption alternative.
To estimate the minimum quantified
benefits to broiler growers, Gmin, under
the small business exemption
alternative, AMS multiplied the
minimum quantified benefits under the
preferred alternative in Table 3 by 98
percent.
AMS estimates the aggregate
minimum benefits to growers, Gmin,
from §§ 201.102 and 201.104 under the
small business exemption alternative
from reduced profit uncertainty to be
$2.6 million in the first year and on an
ongoing basis.183 The ten-year total
minimum benefits of §§ 201.102 and
201.104 to broiler growers are estimated
to be $26.4 million and the present
value of the ten-year total minimum
benefits to be $22.5 million discounted
at a 3 percent rate and $18.5 million at
a 7 percent rate. The annualized PV of
ten-year minimum benefits to broiler
growers discounted at 3 and 7 percent
rates are expected to be $2.6 million.
The total benefits to the industry, BT,
from §§ 201.102 and 201.104, under the
small business exemption alternative,
would be the sum of the minimum
benefits to all broiler growers, Gmin, and
the other benefits to the industry from
extra information and a more efficient
allocation of labor and capital, BO. The
values of the estimated benefits appear
in Table 4 in the next section. AMS
expects the quantified minimum
benefits to growers from §§ 201.102 and
201.104, combined with the other nonquantified benefits to growers, to exceed
the costs of §§ 201.102 and 201.104
under the small business exemption
alternative.
Combined Costs and Benefits of
§§ 201.102 and 201.104
The aggregate cost and benefit
estimates of §§ 201.102 and 201.104
under the small business exemption
alternative presented above appear in
the following table. The quantified costs
and minimum quantifiable benefits to
the industry in the first year under the
small business exemption alternative
are $2.7 million and $2.6 million,
respectively. The minimum quantifiable
benefits exceed the quantified costs on
a ten-year and ten-year annualized
basis.
As with the preferred option, AMS
expects that the net benefits to the
industry from §§ 201.102 and 201.104
under the small business exemption
alternative will be very small in relation
to the total value of industry
production. Thus, AMS expects the
impacts of the net benefits on total
industry supply under the small
business exemption alternative to be
immeasurably small, leading to
immeasurably small indirect effects on
industry supply and demand, including
price and quantity effects.
TABLE 4—QUANTIFIABLE COSTS AND BENEFITS OF §§ 201.102 AND 201.104—SMALL BUSINESS EXEMPTION
Cost
Small business exemption alternative
Live poultry
dealers
§ 201.102:
First-Year ......................................................................
Ten-Year Total ..............................................................
PV of Ten-Year Discounted at 3 Percent .....................
PV of Ten-Year Discounted at 7 Percent .....................
PV of Ten-Year Annualized at 3 Percent .....................
PV of Ten-Year Annualized at 7 Percent .....................
§ 201.104:
First-Year ......................................................................
Ten-Year Total ..............................................................
PV of Ten-Year Discounted at 3 Percent .....................
PV of Ten-Year Discounted at 7 Percent .....................
PV of Ten-Year Annualized at 3 Percent .....................
PV of Ten-Year Annualized at 7 Percent .....................
§§ 201.102 and 201.104:
First-Year ......................................................................
Ten-Year Total ..............................................................
PV of Ten-Year Discounted at 3 Percent .....................
PV of Ten-Year Discounted at 7 Percent .....................
PV of Ten-Year Annualized at 3 Percent .....................
PV of Ten-Year Annualized at 7 Percent .....................
a AMS
Benefits
Individual
grower
(Gmin) a
Total
industry
(BT)
Broiler
rowers
Industry
total
$743,000
3,062,000
2,669,000
2,264,000
313,000
322,000
$1,175,000
3,132,000
2,799,000
2,449,000
328,000
349,000
$1,918,000
6,194,000
5,469,000
4,713,000
641,000
671,000
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
+
+
+
+
+
+
BO
BO
BO
BO
BO
BO
276,000
1,390,000
1,204,000
1,011,000
141,000
144,000
........................
1,019,000
4,452,000
3,873,000
3,275,000
454,000
466,000
473,000
3,955,000
3,383,000
2,798,000
397,000
398,000
749,000
5,345,000
4,587,000
3,809,000
538,000
542,000
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
+
+
+
+
+
+
BO
BO
BO
BO
BO
BO
1,648,000
7,087,000
6,183,000
5,247,000
725,000
747,000
2,667,000
11,539,000
10,056,000
8,522,000
1,179,000
1,213,000
2,637,000
26,369,000
22,493,000
18,520,000
2,637,000
2,637,000
Gmin
Gmin
Gmin
Gmin
Gmin
Gmin
+
+
+
+
+
+
BO
BO
BO
BO
BO
BO
estimates Gmin as the combined benefits to growers of §§ 201.102 and 201.104.
do not include unquantified cost of risk increases.
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b Estimates
AMS considered the small business
exemption alternative in part because of
concerns that, due to scale economies,
smaller live poultry dealers would not
be able to absorb the cost of the required
information disclosures as well as the
large live poultry dealers. If the costs are
disproportionately large for smaller live
poultry dealers, large dealers might have
183 All benefits estimates assume a moderate (20
percent) RAP and a 2 percent reduction in
coefficient of variation of net revenue.
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an advantage possibly driving further
consolidation chicken production. AMS
subject matter experts do not expect that
the costs of the rule will result in any
additional consolidation by large live
poultry dealers acquiring small live
poultry dealers. The reasons are a lack
of additional economies of scale from a
large firm acquiring a small firm and the
increase in costs to the large firm from
no longer having the exemptions to
small live poultry dealers offered in the
preferred alternative.
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AMS also had to consider the rights
of the growers who contracted with the
smaller live poultry dealers. Those
growers would be denied the benefits of
the rule under the small business
exemption. Also, AMS estimates that
costs associated with the required
information disclosures will be small
relative to the size of the industry.
Given these considerations, AMS chose
final §§ 201.102 and 201.104, which
exempts small live poultry dealers from
some, not all, of the disclosures required
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of the large firms over the alternative
rule that would exempt all live poultry
dealers producing less than 2 million
pounds of chicken per week.
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C. Regulatory Flexibility Analysis
AMS is adding §§ 201.102 and
201.104 to the regulations under the
Act. Section 201.102 will require live
poultry dealers that deal in broilers to
make disclosures before entering into
new contracts or renewing existing
contracts. Section 201.104 will require
live poultry dealers that deal in broilers
to disclose information at the settlement
of each flock. Sections 201.102 and
201.104 will not apply to live poultry
dealers that deal in turkeys, ducks,
geese, or other fowl if the live poultry
dealer does not deal in broilers.
The provisions in § 201.102 will
require large live poultry dealers to
disclose a true written copy of the
growing agreement and a new
Disclosure Document any time a live
poultry dealer seeks to renew, revise, or
replace an existing poultry growing
arrangement that does not contemplate
modifications to the existing housing
specifications. Small live poultry
dealers that process less than 2 million
pounds of poultry per week will be
excluded from this disclosure
requirement. Before a live poultry dealer
enters a poultry growing arrangement
that would require an original capital
investment or requires modifications to
existing housing, both large and small
live poultry dealers must provide a copy
of the growing agreement, the housing
specifications, a letter of intent, and the
new Disclosure Document.
The Disclosure Document will require
live poultry dealers to disclose
summaries of litigation with any broiler
grower, bankruptcy filings, and the live
poultry dealer’s policy regarding a
grower’s sale of the farm or assignment
of the contract.
Live poultry dealers will be required
to disclose growers’ variable costs if it
collects the information. Live poultry
dealers will be required to audit the
information to ensure accuracy and
obtain and file signed receipts certifying
that the live poultry dealer provided the
required Disclosure Document. Live
poultry dealers will be required to
describe policies and procedures, as
well as any appeal rights arising from
increased lay-out time; sick, diseased,
and high early mortality flocks; other
events potentially resulting in massive
depopulation of flocks, affecting grower
payments; feed outages including outage
times; and grower complaints relating to
feed quality, formulation, or suitability.
Live poultry dealers will be required to
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disclose annual grower turnover rates as
well.
The Disclosure Document will require
two separate financial disclosures to
growers. The first disclosure will be a
table indicating average annual gross
payments to broiler growers for the
previous calendar year. The table will
be organized by housing specification at
each complex located in the United
States that is owned or operated by the
live poultry dealer and should express
average payments on the basis of U.S.
dollars per farm facility square foot. The
second disclosure will be a set of tables
with the average annual gross payments
per farm facility square foot in each
quintile to broiler growers for each of
the five previous years, organized by
housing specification at each complex.
Live poultry dealers will also be
required to make reasonable efforts to
assist growers in translating the
Disclosure Document. The rule will also
prevent live poultry dealers from
restricting growers or potential growers
from sharing the Disclosure Document
with a translator. Disclosures required
in § 201.104 are associated with poultry
grower ranking systems. At the time of
placement, § 201.104 requires live
poultry dealers to provide specific
information concerning the inputs,
including feed, chicks, medication, etc.,
that the live poultry dealer provided to
the grower. At the time of settlement, it
will require the live poultry to provide
specific information about inputs
provided to every other grower in the
tournament or ranking pool within 24
hours of flock delivery. Similar
information on inputs will also be
disclosed at settlement.
AMS expects the disclosure
requirements in §§ 201.102 and 201.104
will mitigate effects associated with
asymmetric information between broiler
growers and live poultry dealers. Some
of the information held by live poultry
dealers will be valuable to growers
because it influences grower
compensation in tournament contracts
and might help growers in negotiating
contract terms and making decisions
about capital investments.
The contracts themselves are often
incomplete and exhibit asymmetry in
the information available to live poultry
dealers and contract growers. Because
live poultry dealers supply most of the
inputs, much of the production
information is available only to the
grower from the live poultry dealer. For
example, the contract grower may not
know precisely how much feed it used,
or how much weight the flock gained
under his or her care, unless the live
poultry dealer provides the information.
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The proposed rule would have
amended § 201.100 and added new
§ 201.214 to the regulations under the
Act. The final rule will leave the current
§ 201.100 unchanged, and it will add
two new regulations, §§ 201.102 and
201.204.
The proposed rule would have
required live poultry dealers to provide
growers with copies of the disclosure
document and a true written copy of the
contract 7 calendar days prior to
executing the contract. The final rule
changes the 7-day requirement to a 14day requirement, but the broiler grower
has the option to waive 7 calendar days
of that time period.
The proposed rule also would have
required live poultry dealers to obtain
the broiler grower’s or prospective
broiler grower’s dated signature as
evidence of receipt of the Disclosure
Document. The final rule will require
live poultry dealers to obtain the broiler
grower’s or prospective broiler grower’s
dated signature as evidence of receipt
but will also permit a live poultry dealer
to obtain alternative documentation to
evidence delivery and that best efforts
were used to obtain grower receipt. The
proof of delivery and best-efforts
requirement, as an alternative, provide
reasonable assurance in circumstances
where the grower refuses to sign or
where the grower has made him or
herself unavailable that the grower
receives and is able to evaluate in a
timely manner the Disclosure
Document. The grower receipt
requirement, and this alternative, are
comparable in cost and achieve the goal
of this rule to minimize the risk that live
poultry dealer deliver the Disclosure
Document through means that, in
practice, are not be read or noticed by
the grower under the time frames
provided, and so obstruct the purposes
of ensuring the grower can evaluate the
information before the grower makes
significant decisions.
In response to comments to the
proposed rule, AMS changed the final
rule to make it applicable only to live
poultry dealers that deal in broilers. The
rule will not apply to live poultry
dealers that deal with turkeys, ducks,
geese, or other fowl unless the live
poultry dealer also deals in broilers. For
live poultry dealers that deal in broilers
as well as turkeys or other fowl, the
final rule only applies to the broiler
operations.
In response to comments, AMS also
added provisions to § 201.102 that will
require live poultry dealers to assist
growers with understanding the
Disclosure Documents for broiler
growers that do not speak English as a
primary language. AMS also added
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provisions requiring live poultry dealers
to describe policies and procedures, as
well as any appeal rights arising
increased lay-out time; sick, diseased,
and high early mortality flocks; other
events potentially resulting in massive
depopulation of flocks, affecting grower
payments; feed outages including outage
times; and grower complaints relating to
feed quality, formulation, or suitability.
Applying the rule to fewer firms
considerably reduces the aggregate cost
to small businesses. The proposed rule
would have applied to 54 small live
poultry dealers. The final rule will
apply to 20 live poultry dealers that are
small businesses. This is mostly due to
removing live poultry dealers that
handle turkeys. There were very few
live poultry dealers active in the
markets for ducks, geese, and other
fowl. Also, the smallest of the small live
poultry dealers do not deal in broilers,
and while they would have been
required to comply with the proposed
rule, the final rule will not apply to
them.
AMS also added disclosure
requirements to the final rule that were
not required in the proposed rule, and
those disclosures will increase costs to
the small businesses that will be
required to comply with the final rule.
The Small Business Administration
(SBA) defines small businesses by their
North American Industry Classification
System Codes (NAICS). SBA considers
broiler producers, NAICS 112320, small
if sales are less than $3.5 million per
year. Live poultry dealers, NAICS
311615, are considered small businesses
if they have fewer than 1,250
employees.184
AMS maintains data on live poultry
dealers from the annual reports these
firms file with PSD. Data from the
annual reports indicate that 42 live
poultry dealers would have been subject
to the regulation in their fiscal year
2021. Twenty of the live poultry dealers
would be small businesses according to
the SBA standard. In their fiscal year
2021, live poultry dealers reported that
they had 19,808 broiler production
contracts with broiler growers. Small
live poultry dealers accounted for 950
contracts.
Annual reports from live poultry
dealers indicate they had 19,808
contracts, but a broiler grower can have
more than one contract. The 2017
Census of Agriculture indicated that
there were 16,524 poultry growers in the
184 U.S. Small Business Administration. Table of
Small Business Size Standards Matched to North
American Industry Classification System Codes.
Effective December 19, 2022.
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United States.185 AMS has no record of
the number of broiler growers that
qualify as small businesses but expects
that nearly all of them are small
businesses.
Costs of §§ 201.102 and 201.104 to
live poultry dealers will primarily
consist of the time required to gather the
information and distribute it among the
growers. Sections 201.102 and 201.104
will also cost broiler growers the value
of the time they put into reviewing and
acknowledging receipt of the
disclosures.
Expected costs are estimated as the
total value of the time required to
produce and distribute the disclosures
that will be required by §§ 201.102 and
201.104 as well as the time to create and
maintain any necessary additional
records, although live poultry dealers
already keep nearly all of the required
records. Estimates of the amount of time
required to create and distribute the
disclosure documents were provided by
AMS subject matter experts. These
experts were auditors and supervisors
with many years of experience in
auditing live poultry dealers for
compliance with the Act. Estimates for
the value of the time are DOL BLS
OEWS estimated released May 2022.186
AMS marked up the wages 41.82
percent to account for benefits.
AMS expects § 201.102 will initially
require 1,589 hours of management time
at $84.27 per hour costing $134,000, 720
hours of attorney time at $131.38 per
hour costing $95,000, 487 hours of
administrative time at $41.71 per hour
costing $20,000, and 396 hours of
information technology staff hours at
$92.91 per hour costing $37,000 to keep
and maintain records and produce and
distribute the disclosures. AMS expects
§ 201.102 will annually require an
additional 578 hours of management
time at $84.27 per hour costing $49,000,
116 hours of attorney time at $131.38
per hour costing $15,000, 254 hours of
administrative time at $41.71 per hour
costing $11,000, and 148 hours of
information technology staff hours at
$92.91 per hour costing $14,000. Total
aggregate first-year one-time set up costs
to small live poultry dealers for
§ 201.102 are expected to be $286,000.
AMS expects aggregate cost to small live
poultry dealers to be $88,000 annually,
for a first-year total cost of $374,000.
185 USDA, NASS. 2017 Census of Agriculture:
United States Summary and State Data. Volume 1,
Part 51. Issued April 2019. p. 56. https://
www.nass.usda.gov/Publications/AgCensus/2017/
Full_Report/Volume_1,_Chapter_1_US/usv1.pdf.
186 See U.S. Bureau of Labor Statistics, May 2021
National Occupational Employment and Wage
Estimates, May 2022. https://www.bls.gov/oes/
special.requests/oesm21all.zip. Viewed January 31,
2023.
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AMS estimated § 201.104 will require
a one-time first year aggregate
investment of 300 hours of management
time at $84.27 per hour costing $25,000,
220 hours of administrative time at
$41.71 per hour costing $9,000, and 840
hours of information technology staff
time at $92.91 per hour costing $78,000.
Total aggregate first-year setup costs are
expected to be $112,000.
AMS expects § 201.104 will annually
require an aggregate additional 1,257
hours distributed evenly across
management, administrative, and
information technology staff at $84.27,
$41.71, and $92.91 per hour,
respectively, costing $35,000, $17,000,
and $39,000 respectively to keep and
maintain records and produce and
distribute the disclosures. Total
aggregate first-year costs to small live
poultry dealers for § 201.104 are
expected to be $204,000. After the first
year, aggregate costs are expected to be
$92,000 annually.
The rule will regulate live poultry
dealers’ contracts. AMS expects that
costs per live poultry dealer would be
correlated with number of contracts. All
expected costs of § 201.102 are
associated with maintaining records and
producing and distributing Disclosure
Documents among contract growers.
AMS expects that firms that contract
with few growers will have lower costs.
Larger live poultry dealers will tend to
have more contracts and will likely have
more costs. Section 201.104 only
concerns poultry ranking systems.
Smaller live poultry dealers that do not
have tournament contracts will not have
any of the costs associated with
§ 201.104, and some live poultry dealers
have few contracts with broiler growers
and raise broiler in their own facilities.
Those dealers will have relatively lower
costs.
AMS does not regulate poultry
growers, and the rule has no
requirements of poultry growers. To
benefit from the disclosures, growers
will need to review the information
provided. Growers are not required to
review the disclosure information in
§§ 201.102 and 201.104, and growers
that do not expect a benefit from
reviewing the disclosure information
likely will not review it.
AMS estimates aggregate growers’
costs for reviewing disclosures
associated with §§ 201.102 and 201.104
combined to be $93,000 in the initial
year. After broiler growers become
familiar with the disclosures, they will
likely require less time to review the
documents, and AMS expects annual
aggregate costs to growers will be
$41,000 for years two through five and
$38,000 each year thereafter. This
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amounts to $117 per grower in the first
year. The table below summarizes costs
of §§ 201.102 and 201.104 to small live
83285
poultry dealers and small broiler
growers.
TABLE 5—ESTIMATED COSTS TO SMALL BUSINESSES OF §§ 201.102 AND 201.104
Regulated live
poultry dealers
(dollars)
Type of cost
§ 201.102:
First-year Cost ....................................................................................................
First-year Cost per Firm .....................................................................................
PV of Ten-year Cost Discounted at 3 Percent ..................................................
PV of Ten-year Cost Discounted at 7 Percent ..................................................
Ten-year Cost Annualized at 3 Percent .............................................................
Ten-year Cost Annualized at 7 Percent .............................................................
Average Ten-Year Cost per Firm Annualized at 3 Percent ...............................
Average Ten-Year Cost per Firm Annualized at 7 Percent ...............................
§ 201.104:
First-year Cost ....................................................................................................
First-year Cost per Firm .....................................................................................
PV of Ten-year Cost Discounted at 3 Percent ..................................................
PV of Ten-year Cost Discounted at 7 Percent ..................................................
Ten-year Cost Annualized at 3 Percent .............................................................
Ten-year Cost Annualized at 7 Percent .............................................................
Average Ten-Year Cost per Firm Annualized at 3 Percent ...............................
Average Ten-Year Cost per Firm Annualized at 7 Percent ...............................
§§ 201.102 and 201.104:
First-year Cost ....................................................................................................
First-year Cost per Firm .....................................................................................
PV of Ten-year Cost Discounted at 3 Percent ..................................................
PV of Ten-year Cost Discounted at 7 Percent ..................................................
Ten-year Cost Annualized at 3 Percent .............................................................
Ten-year Cost Annualized at 7 Percent .............................................................
Average Ten-Year Cost per Firm Annualized at 3 Percent ...............................
Average Ten-Year Cost per Firm Annualized at 7 Percent ...............................
Live poultry dealers report net sales
in annual reports to AMS. Table 6 below
groups small live poultry dealers’ net
sales into quartiles, reports the average
net sales in each quartile, and compares
average net sales to average expected
first-year costs per firm for each of
§ 201.102 and § 201.104 and total firstyear costs. Estimated first-year costs are
Unregulated
growers
(dollars)
Total
(dollars)
374,000
19,000
1,031,000
888,000
121,000
126,000
6,100
6,300
58,000
73
137,000
120,000
16,000
17,000
20
22
432,000
NA
1,168,000
1,008,000
137,000
143,000
NA
NA
204,000
10,000
891,000
749,000
105,000
107,000
5,300
5,400
35,000
45
252,000
209,000
30,000
30,000
37
37
239,000
NA
1,144,000
958,000
134,000
136,000
NA
NA
578,000
29,000
1,923,000
1,637,000
225,000
233,000
11,300
11,700
93,000
117
389,000
329,000
46,000
47,000
58
59
671,000
NA
2,312,000
1,965,000
271,000
280,000
NA
NA
higher than 10-year annualized costs,
and for the threshold analysis, first-year
costs will be higher than annualized
costs as percentage of net sales.
Correspondingly, the ratio of ten-year
annualized costs to net sales is lower
than their corresponding first-year cost
ratios listed in Table 6. If estimated
costs meet the threshold in the first
year, they will in the following years as
well.
Estimated first-year costs per firm are
small. The ratio is less than 0.1 percent
of average net sales in the three largest
quartiles. Percentage of net sales are
about 0.26 percent in the smallest
quartile.
TABLE 6—COMPARISON OF SMALL LIVE POULTRY DEALERS’ NET SALES TO EXPECTED ANNUALIZED COSTS OF
§§ 201.102 AND 201.104
Average net sales
(dollars)
Quartile
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.
0 to 25 percent ........................................................................
25 to 50 percent ......................................................................
50 to 75 percent ......................................................................
75 to 100 percent ....................................................................
AMS also estimated costs of an
alternative proposal that would exempt
most small live poultry dealers from the
requirements of the regulations. The
alternative would exempt all live
poultry dealers that process less than 2
million pounds of poultry per week
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First year costs
related to
§ 201.102 as a
percent of net
sales
(percent)
11,173,037
30,021,116
73,471,776
193,207,736
0.260
0.097
0.039
0.015
from all reporting requirements. The
alternative would only apply to five
small business under the SBA standard.
AMS estimated the alternative to
§ 201.102 would require a one-time first
year aggregate investment of 488 hours
of management time at $84.27 per hour
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First year costs
related to
§ 201.104 as a
percent of net
sales
(percent)
0.101
0.038
0.015
0.006
Total first year
costs as a percent
of net sales
(percent)
0.105
0.039
0.016
0.006
costing $41,000, 180 hours of attorney
time at $131.38 per hour costing
$24,000, 145 hours of administrative
time at $41.71 per hour costing $6,000,
and 163 hours of information
technology staff time at $92.91 per hour
costing $15,000. Aggregate total first-
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year setup costs are expected to be
$86,000. AMS expects the alternative
proposal for § 201.102 will annually
require an additional aggregate 198
hours of management time at $84.27 per
hour costing $17,000, 29 hours of
attorney time at $131.38 per hour
costing $4,000, 92 hours of
administrative time at $41.71 per hour
costing $4,000, and 64 hours of
information technology staff hours at
$92.91 per hour costing $6,000 to keep
and maintain records and produce and
distribute the disclosures. Aggregate
total first-year costs to small live poultry
dealers for § 201.102 are expected to be
$116,000. After the first year AMS
expects aggregate costs to small live
poultry dealers to be $30,000 annually.
AMS estimated alternative § 201.104
will require a one-time first year
aggregate investment of 75 hours of
management time at $84.27 per hour
costing $6,000, 55 hours of
administrative time at $41.71 per hour
costing $2,000, and 210 hours of
information technology staff time at
$92.91 per hour costing $20,000.
Aggregate total first-year setup costs are
expected to be $28,000.
AMS expects alternative § 201.104
will annually require an additional
aggregate 70 hours distributed evenly
across management, administrative, and
information technology staff at $84.27,
$41.71, and $92.91 per hour,
respectively, costing $2,000, $1,000, and
$2,000 respectively to keep and
maintain records and produce and
distribute the disclosures. Aggregate
total first-year costs to small live poultry
dealers for alternative § 201.104 are
expected to be $33,000. After the first
year, costs are expected to be $5,000
annually.
The alternative would have a
relatively small effect on costs to broiler
growers on a per grower basis, and
growers will only review the disclosures
if they perceive that they are beneficial.
AMS estimates growers’ aggregate costs
for reviewing and acknowledging
receipt of disclosures associated with
§§ 201.102 and 201.104 to be $55,000 in
the initial year. AMS expects annual
aggregate costs to growers would be
$24,000 for years two through five and
$22,000 each year thereafter. Table 7
below summarizes aggregate costs of
alternative §§ 201.102 and 201.104
combined to small live poultry dealers
and small broiler growers.
TABLE 7—ESTIMATED COSTS TO SMALL BUSINESSES OF ALTERNATIVE §§ 201.102 AND 201.104
Regulated live
poultry dealers
(dollars)
Type of cost
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Alternative § 201.102:
First-year Cost ....................................................................................................
First Year-Cost Per Firm ....................................................................................
PV of Ten-year Cost Discounted at 3 Percent ..................................................
PV of Ten-year Cost Discounted at 7 Percent ..................................................
Ten-year Cost Annualized at 3 Percent .............................................................
Ten-year Cost Annualized at 7 Percent .............................................................
Average Ten-Year Cost per Firm Annualized at 3 Percent ...............................
Average Ten-Year Cost per Firm Annualized at 7 Percent ...............................
Alternative § 201.104:
First-year Cost ....................................................................................................
First Year-Cost Per Firm ....................................................................................
PV of Ten-year Cost Discounted at 3 Percent ..................................................
PV of Ten-year Cost Discounted at 7 Percent ..................................................
Ten-year Cost Annualized at 3 Percent .............................................................
Ten-year Cost Annualized at 7 Percent .............................................................
Average Ten-Year Cost per Firm Annualized at 3 Percent ...............................
Average Ten-Year Cost per Firm Annualized at 7 Percent ...............................
Alternative §§ 201.102 and 201.104:
First-year Cost ....................................................................................................
First Year-Cost Per Firm ....................................................................................
PV of Ten-year Cost Discounted at 3 Percent ..................................................
PV of Ten-year Cost Discounted at 7 Percent ..................................................
Ten-year Cost Annualized at 3 Percent .............................................................
Ten-year Cost Annualized at 7 Percent .............................................................
Average Ten-Year Cost per Firm Annualized at 3 Percent ...............................
Average Ten-Year Cost per Firm Annualized at 7 Percent ...............................
Net sales for small live poultry dealers
that will be required to make disclosure
under alternative §§ 201.102 and
201.104 averaged $159 million for their
fiscal year 2020. Expected first-year cost
per live poultry dealer will be well
below 0.1 percent. Clearly, exempting
live poultry dealers that process less
than 2 million pounds of poultry per
week will reduce cost to small live
poultry dealers, but the benefits of the
rule will also be less. AMS prefers the
final §§ 201.102 and 201.104 to the
alternative because it considers the
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Frm 00078
Fmt 4701
Sfmt 4700
Total
(dollars)
116,000
6,000
342,000
293,000
40,000
42,000
2,000
2,100
34,000
43
81,000
71,000
9,000
10,000
12
13
150,000
NA
422,000
364,000
50,000
52,000
NA
NA
33,000
2,000
71,000
62,000
8,000
9,000
400
500
21,000
26
149,000
123,000
17,000
17,000
22
22
54,000
NA
220,000
185,000
26,000
26,000
NA
NA
150,000
7,000
413,000
355,000
48,000
51,000
2,400
2,600
55,000
69
229,000
193,000
27,000
28,000
34
35
204,000
NA
642,000
549,000
75,000
78,000
NA
NA
information in the disclosures to be
important for broiler growers for making
investment and production decisions
and necessary for the efficient
functioning of the market.
AMS made considerations for small
live poultry dealers in drafting
§§ 201.102 and 201.104. Section 201.102
makes several exemptions for live
poultry dealers producing less than 2
million pounds of poultry per week.
AMS chose not to make the final rule
applicable to live poultry dealers that
deal in turkeys, ducks, geese, or other
PO 00000
Unregulated
growers
(dollars)
fowl, which were some of the smallest
live poultry dealers.
Although costs would be smaller with
the alternative, the costs associated with
§§ 201.102 and 201.104 are relatively
small. The rule seeks only to require
live poultry dealers to provide its
contract growers with information
relevant to their operations, and AMS
made every effort to limit the
disclosures to information that live
poultry dealer already possessed. Firstyear costs to regulated live poultry
dealers are expected to be $578,000,
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which would be about $29,000 per firm.
Present value of ten-year costs
annualized at 7 percent are expected to
be $1.6 million, and ten-year costs
annualized at 7 percent are expected to
be $233,000. These amounts are small
considering that small live poultry
dealers averaged nearly $60 million in
sales annually. Although estimates of
costs relative net sales increase for the
smallest live poultry dealers, §§ 201.102
and 201.104 only apply to tournament
contracts. Some of the smallest live
poultry dealers do not use tournament
contracts and will not incur any costs.
While §§ 201.102 and 201.104 would
have an effect on a substantial number
(20) of small businesses, the economic
impact would not be significant.
Costs to growers will be limited to the
time required to review the disclosure
and acknowledge receipt of the
disclosures. AMS expects that
§§ 201.102 and 201.104 will have effects
on a substantial number of growers
however, the costs will not be
significant for any of them.
Based on the above analyses regarding
§§ 201.102 and 201.104, this rule is not
expected to have a significant economic
impact on a substantial number of small
business entities as defined in the
Regulatory Flexibility Act (5 U.S.C. 601
et seq.)
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D. Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C.
Chapter 35), AMS published a 60-day
notice and requested comments on the
information collection and
recordkeeping requirements of the
proposed rule when it proposed
revisions to §§ 201.100 and 201.214 in
the Federal Register on June 8, 2022 (87
FR 34980).187 The proposed information
collection was for a total of 19,993 hours
for the first year, and 6,066 hours per
year thereafter. In response to
comments, AMS revised the information
collection requirements for the final rule
and recalculated the information
collection burden estimates accordingly,
for a total of 17,205 hours for the first
year, and 6,615 hours thereafter. The
comment period was open for 60 days
and was extended for an additional 15
days. The comment period closed on
August 23, 2022. Below is a summary of
the final rule’s information collection
requirements, the comments AMS
received relating to the information
collection requirements of the proposed
187 The new sections that AMS proposed in
§§ 201.100 and 201.214 are now §§ 201.102 and
201.104 in the final rule, respectively.
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rule, and any changes AMS made in
response to the comments.
This final rule requires live poultry
dealers engaged in the production of
broilers to provide certain disclosures to
broiler growers in advance of entering
into production contracts. Under the
final rule, live poultry dealers engaged
in the production of broilers are
required to make certain disclosures to
poultry growers with whom they
contract. To assist with compliance,
AMS is providing Form PSD 6100 (Live
Poultry Dealer Disclosure Document
Form Instructions), which includes
instructions for developing the
Disclosure Document and performing
necessary calculations.
This final rule also requires live
poultry dealers engaged in the
production of broilers who group and
rank broiler growers for settlement
purposes to disclose essential
information to broiler growers about the
flocks placed with individual growers at
the time of placement. Live poultry
dealers are also required to disclose
information about the flocks and
associated production inputs delivered
to all broiler growers in the settlement
group, as well as each grower’s ranking
within the group, at the time of
settlement. Broiler growers are not
required to provide information but can
use the information provided by live
poultry dealers to improve flock
management practices and evaluate
grower treatment under broiler grower
ranking systems.
Summary information on the burdens
of these new information collection and
recordkeeping requirements follows
below. Additional detail can be found in
the Regulatory Impact Analysis (RIA).
AMS estimates each of 42 live poultry
dealers engaged in the production of
broilers would develop an average of
472 Disclosure Documents for broiler
growers relating to new, renewed,
revised, or updated broiler growing
arrangements, as required under
§ 201.102. AMS arrived at its estimate of
472 developed Disclosure Documents
per live poultry dealer from AMS
records which show 42 live poultry
dealers engaged in the production of
broilers filed annual reports with AMS,
and their reports indicate that they had
19,808 growing contracts with broiler
growers during their fiscal year 2021.
AMS divided the 19,808 growing
contracts by the 42 live poultry dealers
to arrive at 472 Disclosure Documents
per live poultry dealer.
Live poultry dealers with current
contracts with broiler growers would
not be required to provide the
Disclosure Document to those growers
unless the dealer is renewing, revising,
PO 00000
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83287
or replacing an existing contract or
proposing modifications to the broiler
housing specifications under the
existing contract. AMS estimates first
year development, production, and
distribution of the Disclosure
Documents in § 201.102, including
management, legal, administrative, and
information technology time, would
require an average 0.59 hours each,
while ongoing annual production and
distribution of each Disclosure
Document would take 0.20 hours. AMS
arrived at the estimates of the number
of hours per response to set up,
produce, distribute, and maintain each
Disclosure Document by dividing the
annual number of hours to set up,
produce, and distribute the disclosures
(11,709 first year hours and 3,975
ongoing hours) by the annual number of
responses for all live poultry dealers
(19,808). AMS estimated the number of
hours for all live poultry dealers to
develop, produce, distribute, and
maintain each Disclosure Document
required under § 201.102 from the
number of hours estimated and the
expected cost estimates in Tables 1 and
2 in Appendix 1.
AMS estimates 42 live poultry dealers
engaged in the production of broilers
would each provide placement and
settlement records to an average of 628
broiler growers annually under
tournament ranking systems, as required
under § 201.104. AMS estimated the
annual number of placement and
settlement records by multiplying the
number of relevant slaughter plants in
AMS records from the reports that live
poultry dealers file with AMS (188) by
the average number of tournaments at
each plant per week from AMS subject
matter experts (1.35) by 52 weeks. This
product is then multiplied by two to
account for both placement and
settlement records. AMS then divided
the estimated annual number of
responses (26,395) by the number of live
poultry dealers (42) engaged in the
production of broilers to arrive at its
estimate of 628 placement and
settlement disclosure records for each
live poultry dealer on an annual basis.
AMS estimates first year
development, production, and
distribution of the required placement
and settlement records, as required
under § 201.104, including
management, legal, administrative, and
information technology time, will
require approximately 0.21 hours. AMS
estimates ongoing annual production
and distribution of required tournament
placement and settlement information
would require an average of 0.10 hours.
AMS arrived at the estimates of the
number of hours per response to set up,
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produce, distribute, and maintain each
disclosure document by dividing the
annual number of hours to set up,
produce, and distribute the disclosures
(5,496 first year hours and 2,640
ongoing hours) by the annual number of
responses for live poultry dealers
(26,395). AMS estimated the number of
hours for all live poultry dealers
engaged in the production of broilers to
develop, produce, and distribute each
placement and settlement disclosure
document required under § 201.104
from the number of hours estimated and
the expected cost estimates in Tables 3
and 4 in Appendix 1.
Under § 201.102, live poultry dealers
are required to certify as to the accuracy
of the Disclosure Documents and are
required to maintain records relating to
the Disclosure Documents for three
years following expiration of the broiler
growing arrangement. Under § 201.104,
live poultry dealers are required to
maintain records related to broiler
grower tournament placements and
settlement for 5 years.
The required disclosures under
§ 201.102 include essential information
about the contract, the live poultry
dealer’s business history, and financial
projections the grower could use to
evaluate entering into the contract.
Under the rule, live poultry dealers are
required to provide the Disclosure
Documents, which include specified
information and boilerplate grower
notifications. AMS will make available
PSD Form 6100 that dealers can
download from the AMS website to
assist with development of the required
Disclosure Document. Live poultry
dealers are required to obtain grower
signatures as evidence of the grower’s
receipt of the Disclosure Document, or
obtain alternative documentation to
evidence delivery and that best efforts
were used to obtain grower receipt. Live
poultry dealers are also required to
retain the signature pages for three years
following contract expiration.
Section 201.104 requires live poultry
dealers engaged in the production of
broilers who group or rank broiler
growers for settlement purposes to
disclose information about each flock of
broiler placed with growers for growout
at the time of placement. Additionally,
live poultry dealers are required to
provide to each broiler grower in the
group, at the time of settlement,
information about the flocks placed
with every grower in the group, as well
as each grower’s performance ranking
within the group. Growers can use
placement disclosures to inform flock
management decisions during growout,
and can use settlement disclosures to
evaluate their growout performance,
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potentially improve future performance,
and evaluate whether group members
are treated fairly. Live poultry dealers
are required to maintain records related
to these disclosures for 5 years
following settlement.
Costs of Final §§ 201.102 and 201.104
The combined costs to live poultry
dealers engaged in the production of
broilers for compliance with the
reporting and recordkeeping
requirements of final §§ 201.102 and
201.104 are expected to be $1,437,096 in
the first year, and $511,788 in
subsequent years. The total hours
estimated for the live poultry dealers to
create, produce, distribute, and
maintain these documents are 17,205 in
the first year, and 6,615 in subsequent
years. Complete details showing how
AMS arrived at these cost estimates
appear in Tables 1–4 in Appendix 1.
Comments From the Proposed Rule and
Changes to the Final Rule
After consideration of public
comments, AMS determined to adopt
the proposed rule as a final rule with
several modifications. This section
provides an overview of the comments
and how the final rule differs from the
proposed rule.
The proposed rule would have
required all live poultry dealers, and not
just those engaged in the production of
broilers, to provide the new disclosures
required in revised § 201.102 and new
§ 201.104. Based on public comments
and other information, AMS
subsequently decided to require the new
disclosures only of live poultry dealers
involved in broiler production. Thus,
the number of entities affected by the
final rule is substantially lower than
originally estimated. This change
significantly reduced the recordkeeping
burden. This and other changes between
the proposed and final rule are
discussed in more detail below.
Live poultry dealers commented that
the full cost of the proposed rule would
likely be many times greater than
predicted by AMS. The commenters
asserted AMS greatly underestimated
the costs of creating the recordkeeping
systems needed to comply with the
proposed rule.
In drafting and in estimating the costs
of proposed §§ 201.100 and 201.214,
AMS consulted auditors and
supervisors who are familiar with live
poultry dealers’ records from many
years of experience in auditing live
poultry dealers for compliance with the
Act. AMS expects that recordkeeping
systems that most live poultry dealers
already have in place will enable them
to gather much of the information in the
PO 00000
Frm 00080
Fmt 4701
Sfmt 4700
disclosures from records they already
have available to them and limit the
necessity of developing new
recordkeeping systems. Thus, AMS
made no changes to the information
collection requirements of the proposed
rule based on this comment.
As mentioned above and will be
explained in further detail below, AMS
did change the language of the proposed
rule to limit its application to broiler
production. In order to make
compliance with the final rule as easy
as possible for regulated entities to
follow, AMS reorganized the final rule
by moving the new disclosures required
into revised § 201.102 and new
§ 201.104.
In the final rule, AMS removed the
proposed revisions to § 201.100
requiring all live poultry dealers to
provide certain additional disclosures to
prospective or current growers and
placed the requirements in new
§ 201.102. AMS also amended the
proposed requirements to apply
exclusively to live poultry dealers
engaged in the production of broilers
who use a broiler growing ranking
system to calculate grower payments,
and moved the requirements from
proposed new § 201.214 to new
§ 201.104. This reorganization of the
rule does not impact the recordkeeping
requirements or costs of the final rule.
A commenter representing the turkey
industry noted the proposed rule was
largely based on research into the
broiler industry. The commenter
asserted it would be extremely difficult
for turkey companies to implement the
rule due to differences between turkey
and chicken production. AMS analyzed
a sample of turkey production contracts
from across the country and concluded
that, although research suggests broiler
grower contract payments span a wide
range, a similar disparity is not readily
apparent in turkey production. Based on
the comment and our further study,
AMS has limited the applicability of
final §§ 201.102 and 201.104 to live
poultry dealers engaged in the
production of broilers. The final rule
does not apply to live poultry dealers
engaged in the production of turkeys,
ducks, geese, and other domestic fowl.
This change reduced the information
collection burden from 89 respondents
made up of live poultry dealers engaged
in the production of broilers, turkeys,
ducks, geese, and other domestic fowl to
42 live poultry dealers engaged in the
production of broilers. Accordingly, this
change reduced the information
collection burden on live poultry
dealers between the proposed
§§ 201.100 and 201.214 and final
§§ 201.102 and 201.104.
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AMS proposed to require live poultry
dealers to make various financial
disclosures to broiler growers, including
a table showing ‘‘average annual gross
payments’’ made to growers at all
complexes owned or operated by the
live poultry dealer for the previous
calendar year, as well as to growers at
the local complex. Poultry and meat
trade associations suggested AMS
require dealers to disclose average
annual gross payments only for the
grower’s local complex. These
commenters noted that complexes in
different geographic areas face different
economic conditions, arguing that
information about payments at other
complexes would not be useful and
would potentially confuse growers.
Therefore, AMS removed the
requirement proposed in § 201.100(d)(1)
to disclose payment information for all
complexes owned or operated by the
dealer. AMS maintains the requirement
proposed in § 201.100(d)(2) for live
poultry dealers engaged in the
production of broilers to disclose
payment information only relating to
the broiler grower’s local complex at
§ 201.102(d)(1) of the final rule.
Accordingly, this change reduced the
information collection burden on live
poultry dealers between the proposed
and final rule.
Both growers and live poultry dealers
also requested in comments that AMS
provide more specificity on how to
calculate average annual gross
payments. While the proposed rule
provided detail on calculations, the
commenters felt the instructions lacked
sufficient specificity to assure that live
poultry dealers could comply and that
broiler growers received adequate data
on which to base business decisions.
Therefore, AMS developed more indepth instructions on how to calculate
them, which are included in Form PSD
6100 (Live Poultry Dealer Disclosure
Document Form Instructions). AMS
added a modest amount of time to its
cost estimates for live poultry dealers to
review the instructions.
Several commenters recommended
that AMS also require the disclosure of
grower turnover data. Grower turnover
rates relate to the general risk of
termination and non-renewal of
contracts with a live poultry dealer.
This information would allow growers
to compare the turnover rates of
multiple live poultry dealers as a risk
factor when making contracting
decisions. Therefore, AMS added a
provision at § 201.102(c)(5) of the final
rule requiring live poultry dealers
engaged in the production of broilers to
disclose average annual broiler grower
turnover rates for the previous calendar
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year and the average of the 5 previous
calendar years at both the company
level and the local complex level. AMS
developed instructions for how to
calculate average annual broiler grower
turnover rates, which are included in
Form PSD 6100. AMS added a modest
amount of time to its cost estimates for
live poultry dealers to review the
instructions and calculate grower
turnover rates.
Numerous commenters from the
grower and live poultry dealer sectors
expressed that these provisions should
be in plain and unambiguous language
to avoid discrepancies in interpretation
among the various parties, regulators,
and courts. Some commenters also
indicated a need to ensure growers who
are not native speakers of English can
understand the disclosures. Therefore,
AMS added a provision at
§ 201.102(g)(3) of the final rule to
require live poultry dealers engaged in
the production of broilers to present the
information in the Disclosure Document
in a clear, concise, and understandable
manner for growers.
AMS also added a provision at
§ 201.102(g)(4) to require that the live
poultry dealer must make reasonable
efforts to ensure that growers are aware
of their right to request translation
assistance, and to assist the grower in
translating the Disclosure Document at
least 14 calendar days before the live
poultry dealer executes the broiler
growing arrangement although the
grower can waive 7 calendar days of
that time period. Reasonable efforts
include but are not limited to providing
current contact information for
professional translation service
providers, trade associations with
translator resources, relevant
community groups, or any other person
or organization that provides translation
services in the broiler grower’s
geographic area. A live poultry dealer
may not restrict a broiler grower or
prospective broiler grower from
discussing or sharing the Disclosure
Document for purposes of translation
with a person or organization that
provides language translation services.
Nothing in the rule prevents companies
from providing a translation provided it
is complete, accurate, and not
misleading. AMS added a modest
amount of time to its cost estimates for
live poultry dealers to comply with
these new requirements.
In the proposed rule, AMS did not
specifically propose to require live
poultry dealers to disclose their policies
on grower payments with respect to
increased lay-out time, diseased flocks,
natural disasters and other depopulation
events, feed issues or outages, or
PO 00000
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83289
policies on grower appeal rights and
processes. Multiple commenters
suggested AMS include these
disclosures. In the final rule, AMS
added a provision at § 201.102(c)(4)
requiring live poultry dealers engaged in
the production of broilers to disclose
policies and procedures on increased
lay-out time; sick, diseased, or high
early mortality flocks; natural disasters,
weather events, or other events
adversely affecting the physical
infrastructure of the local complex or
the grower facility; other events
potentially resulting in massive
depopulation of flocks, affecting grower
payments; feed outages including outage
times; and grower complaints relating to
feed quality, formulation, or suitability,
as well as any appeal rights arising out
of these events. AMS added a modest
amount of time to its cost estimates for
live poultry dealers to comply with this
new requirement.
The proposed rule would have
required live poultry dealers to provide
growers with copies of the disclosure
document and a true written copy of the
contract 7 calendar days prior to
executing the contract. The final rule
changes the 7-day requirement to a 14day requirement, but the broiler grower
has the option to waive 7 calendar days
of that time period.
The proposed rule also would have
required live poultry dealers to obtain
the broiler grower’s or prospective
broiler grower’s dated signature as
evidence of receipt or obtain alternative
documentation acceptable to the
Administrator as evidence of receipt.
The final rule will require live poultry
dealers to obtain the broiler grower’s or
prospective broiler grower’s dated
signature as evidence of receipt or
obtain alternative documentation to
evidence delivery and that best efforts
were used to obtain grower receipt.
AMS proposed in § 201.100(f)(1)(i) to
require live poultry dealers to establish,
maintain, and enforce a governance
framework reasonably designed to audit
the accuracy and completeness of the
disclosures in the Disclosure Document,
which must include audits and testing,
as well as reviews of an appropriate
sampling of Disclosure Documents by
the principal executive officer or
officers. AMS determined that the
requirement in § 201.102(f)(2) for the
principal executive officer or officers to
certify the governance framework and
the accuracy of the Disclosure
Document adequately covers the
intended requirement for officers of this
level to be focused on the effectiveness
of the governance framework. AMS
concluded that this level of detail about
the audit process for the Disclosure
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Document was not necessary,
particularly as AMS seeks to balance the
need to ensure reliability of these
statements with the burden on the
principal executive officers regarding
details of the governance process.
Therefore, AMS removed the
requirement proposed in
§ 201.100(f)(1)(i) for audit, testing, and
reviews of an appropriate sampling of
Disclosure Documents by the principal
executive officer or officers.
E. E-Government Act
USDA is committed to complying
with the E-Government Act by
promoting the use of the internet and
other information technologies to
provide increased opportunities for
citizen access to Government
information and services, and for other
purposes.
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F. Executive Order 12988—Civil Justice
Reform
This final rule has been reviewed
under Executive Order 12988—Civil
Justice Reform. This rule is not intended
to have retroactive effect. This rule does
not preempt State or local laws,
regulations, or policies, unless they
present an irreconcilable conflict with
this rule. There are no administrative
procedures that must be exhausted prior
to any judicial challenge to the
provisions of this rule. Nothing in this
final rule is intended to interfere with
a person’s right to enforce liability
against any person subject to the Act
under authority granted in section 308
of the Act.
G. Executive Order 13175—Consultation
and Coordination With Tribal Indian
Governments
This rule has been reviewed in
accordance with the requirements of
Executive Order 13175—Consultation
and Coordination with Indian Tribal
Governments. Executive Order 13175
requires Federal agencies to consult
with Tribes on a government-togovernment basis on policies that have
Tribal implications, including
regulations, legislative comments or
proposed legislation, and other policy
statements or actions that have
substantial direct effects on one or more
Indian Tribes, on the relationship
between the Federal Government and
Indian Tribes or the distribution of
power and responsibilities between the
Federal Government and Indian Tribes.
AMS has determined that this final
rule does not have substantial direct
effects on one or more Tribes that would
require consultation. If a Tribe requests
consultation, AMS will work with
USDA’s Office of Tribal Relations to
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ensure meaningful consultation is
provided where changes, additions, and
modifications identified herein are not
expressly mandated by Congress. AMS
will also conduct outreach to ensure
that Tribes and Tribal members are
aware of the requirements and benefits
under this final rule.
H. Civil Rights Impact Analysis
AMS has considered the potential
civil rights implications of this final rule
on members of protected groups to
ensure that no person or group will be
adversely or disproportionately at risk
or discriminated against on the basis of
race, color, national origin, gender,
religion, age, disability, sexual
orientation, marital or family status, or
protected genetic information. The rule
does not create a program that would
recruit or require the opt-in
participation of poultry producers,
growers, or live poultry dealers. This
rule does not contain any requirements
related to eligibility, benefits, or services
that will have the purpose or effect of
excluding, limiting, or otherwise
disadvantaging any individual, group,
or class of persons on one or more
prohibited bases. In fact, the regulation
will create means by which AMS may
be able to address potential civil rights
issues in violation of the Act.
In its review, AMS conducted a
disparate impact analysis, using the
required calculations, which resulted in
a finding that Asian Americans, Pacific
Islanders, and Native Hawaiians were
disproportionately impacted by the rule,
insofar as fewer farmers in those groups
participate in poultry production than
would be expected by their
representation among U.S. farmers in
general and therefore are less likely to
benefit from the enhanced transparency
provided by the rule. The final
regulations will nevertheless provide
benefits to all poultry growers. AMS
will institute enhancement efforts to
notify the groups found to be
disproportionately impacted of the
regulations and their implications. AMS
outreach will specifically target several
organizations that regularly engage with
or otherwise may represent the interests
of these impacted groups.
I. Congressional Review Act
Pursuant to Subtitle E of the Small
Business Regulatory Enforcement
Fairness Act of 1996, also known as the
Congressional Review Act (5 U.S.C. 801
et seq.), the Office of Information and
Regulatory affairs designated this final
rule as not a major rule as defined by
5 U.S.C. 804(2).
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List of Subjects in 9 CFR Part 201
Confidential business information,
Reporting and recordkeeping
requirements, Stockyards, Surety bonds,
Trade practices.
For the reasons set forth in the
preamble, the Agricultural Marketing
Service amends 9 CFR part 201 as
follows:
PART 201—ADMINISTERING THE
PACKERS AND STOCKYARDS ACT
1. The authority citation for 9 CFR
part 201 continues to read as follows:
■
Authority: 7 U.S.C. 181–229c.
2. Section 201.2 is revised to read as
follows:
■
§ 201.2
Terms defined.
The definitions of terms contained in
the Act shall apply to such terms when
used in Administering the Packers and
Stockyards Act, 9 CFR part 201; Rules
of Practice Governing Proceedings
Under the Packers and Stockyards Act,
9 CFR part 202; and Statements of
General Policy Under the Packers and
Stockyards Act, 9 CFR part 203. In
addition, the following terms used in
these parts shall be construed to mean:
Act means the Packers and Stockyards
Act, 1921, as amended and
supplemented (7 U.S.C. 181 et seq.).
Additional capital investment means
a combined amount of $12,500 or more
per structure paid by a poultry grower
or swine production contract grower
over the life of the poultry growing
arrangement or swine production
contract beyond the initial investment
for facilities used to grow, raise, and
care for poultry or swine. Such term
includes the total cost of upgrades to the
structure, upgrades of equipment
located in and around each structure,
and goods and professional services that
are directly attributable to the additional
capital investment. The term does not
include costs of maintenance or repair.
Administrator or agency head means
the Administrator of the Agricultural
Marketing Service or any person
authorized to act for the Administrator.
Agency means the Agricultural
Marketing Service of the United States
Department of Agriculture.
Breeder facility identifier means the
identification that a live poultry dealer
permanently assigns to distinguish
among breeder facilities supplying eggs
for the poultry placed at the poultry
grower’s facility.
Breeder flock age means the age in
weeks of the egg-laying flock that is the
source of poultry placed at the poultry
grower’s facility.
Broiler means any chicken raised for
meat production.
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Broiler grower means a poultry grower
engaged in the production of broilers.
Broiler growing arrangement means a
poultry growing arrangement pertaining
to the production of broilers.
Commerce means commerce between
any State, Territory, or possession, or
the District of Columbia, and any place
outside thereof; or between points
within the same State, Territory, or
possession, or the District of Columbia,
but through any place outside thereof;
or within any Territory or possession, or
the District of Columbia.
Complex means a group of local
facilities under the common
management of a live poultry dealer. A
complex may include, but not be
limited to, one or more hatcheries, feed
mills, slaughtering facilities, or poultry
processing facilities.
Custom feedlot means any facility
which is used in its entirety or in part
for the purpose of feeding livestock for
the accounts of others, but does not
include feeding incidental to the sale or
transportation of livestock.
Department means the United States
Department of Agriculture.
Gross payments are the total
compensation a poultry grower receives
from the live poultry dealer, including,
but not limited to, base payments, new
housing allowances, energy allowances,
square footage payments, extended layout time payments, equipment
allowances, bonus payments, additional
capital investment payments, poultry
litter payments, etc., before deductions
or assignments are made.
Grower variable costs means those
costs related to poultry production that
may be borne by the poultry grower,
which may include, but are not limited
to, utilities, fuel, water, labor, repairs
and maintenance, and liability
insurance.
Housing specifications means a
description of—or a document relating
to—a list of equipment, products,
systems, and other technical poultry
housing components required by a live
poultry dealer for the production of live
poultry.
Inputs means the various
contributions to be made by the live
poultry dealer and the poultry grower as
agreed upon by both under a poultry
growing arrangement. Such inputs may
include, but are not limited to, animals,
feed, veterinary services, medicines,
labor, utilities, and fuel.
Letter of intent means a document that
expresses a preliminary commitment
from a live poultry dealer to engage in
a business relationship with a
prospective poultry grower and that
includes the chief terms of the
agreement.
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Live poultry dealer means any person
engaged in the business of obtaining live
poultry by purchase or under a poultry
growing arrangement for the purpose of
either slaughtering it or selling it for
slaughter by another, if poultry is
obtained by such person in commerce,
or if poultry obtained by such person is
sold or shipped in commerce, or if
poultry products from poultry obtained
by such person are sold or shipped in
commerce.
Live Poultry Dealer Disclosure
Document means the complete set of
disclosures and statements that the live
poultry dealer must provide to the
poultry grower.
Minimum number of placements
means the least number of flocks of
poultry the live poultry dealer will
deliver to the grower for growout
annually under the terms of the poultry
growing arrangement.
Minimum stocking density means the
ratio that reflects the minimum weight
of poultry per facility square foot the
live poultry dealer intends to harvest
from the grower following each
growout.
Number of placements means the
number of flocks of poultry the live
poultry dealer will deliver to the grower
for growout during each year of the
poultry growing arrangement period.
Original capital investment means the
initial financial investment for facilities
used to grow, raise, and care for poultry
or swine.
Packers and Stockyards Division
(PSD) means the Packers and Stockyards
Division of the Fair Trade Practices
Program (FTPP), Agricultural Marketing
Service.
Person means individuals,
partnerships, corporations, and
associations.
Placement means delivery of a
poultry flock to the poultry grower for
growout in accordance with the terms of
a poultry growing arrangement.
Poultry grower means any person
engaged in the business of raising and
caring for live poultry for slaughter by
another, whether the poultry is owned
by such person or by another, but not
an employee of the owner of such
poultry.
Poultry grower ranking system means
a system where the contract between the
live poultry dealer and the poultry
grower provides for payment to the
poultry grower based upon a grouping,
ranking, or comparison of poultry
growers delivering poultry during a
specified period.
Poultry growing arrangement means
any growout contract, marketing
agreement, or other arrangement under
which a poultry grower raises and cares
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83291
for live poultry for delivery, in accord
with another’s instructions, for
slaughter.
Poultry growout means the process of
raising and caring for poultry in
anticipation of slaughter.
Poultry growout period means the
period of time between placement of
poultry at a grower’s facility and the
harvest or delivery of such animals for
slaughter, during which the feeding and
care of such poultry are under the
control of the grower.
Principal part of performance means
the raising of and caring for livestock or
poultry, when used in connection with
a livestock or poultry production
contract.
Prospective broiler grower means a
person or entity with whom the live
poultry dealer is considering entering
into a broiler growing arrangement.
Prospective poultry grower means a
person or entity with whom the live
poultry dealer is considering entering
into a poultry growing arrangement.
Regional director means the regional
director of the Packers and Stockyards
Division (PSD) for a given region or any
person authorized to act for the regional
director.
Registrant means any person
registered pursuant to the provisions of
the Act and the regulations in this part.
Schedule means a tariff of rates and
charges filed by stockyard owners and
market agencies.
Secretary means the Secretary of
Agriculture of the United States, or any
officer or employee of the Department
authorized to act for the Secretary.
Stocking density means the ratio that
reflects the number of birds in a
placement, expressed as the number of
poultry per facility square foot.
Stockyard means a livestock market
which has received notice under section
302(b) of the Act that it has been
determined by the Secretary to come
within the definition of ‘‘stockyard’’
under section 302(a) of the Act.
■ 3. Amend § 201.100 by revising
paragraphs (a) and (b) to read as follows:
§ 201.100 Records to be furnished poultry
growers and sellers.
(a) Poultry growing arrangement;
timing of disclosure. A live poultry
dealer who offers a poultry growing
arrangement to a poultry grower must
provide the poultry grower with a true
written copy of the offered poultry
growing arrangement on the date the
dealer provides the poultry grower with
poultry housing specifications.
(b) Right to discuss the terms of
poultry growing arrangement offer. A
live poultry dealer, notwithstanding any
confidentiality provision in the poultry
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growing arrangement, may not prohibit
a poultry grower or prospective poultry
grower from discussing the terms of a
poultry growing arrangement offer or, if
applicable, the accompanying Live
Poultry Dealer Disclosure Document
described in § 201.102 (b) through (d) of
this part with any of the following:
(1) A Federal or State agency.
(2) The grower’s financial advisor or
lender.
(3) The grower’s legal advisor.
(4) An accounting services
representative hired by the grower.
(5) Other growers for the same live
poultry dealer.
(6) A member of the grower’s
immediate family or a business
associate. A business associate is a
person not employed by the grower, but
with whom the grower has a valid
business reason for consulting with
when entering into or operating under a
poultry growing arrangement.
*
*
*
*
*
■ 4. Add § 201.102 to read as follows:
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§ 201.102 Disclosures for broiler
production.
(a) Obligation to furnish information
and documents. In addition to the
requirements of § 201.100 of this part, a
live poultry dealer engaged in the
production of broilers must provide the
documents described in this section to
the prospective or current broiler
grower.
(1) Except as provided in paragraph
(e) of this section, when a live poultry
dealer seeks to renew, revise, or replace
an existing broiler growing arrangement,
or to establish a new broiler growing
arrangement that does not contemplate
modifications to the existing housing
specifications, the live poultry dealer
must provide the following documents
at least 14 calendar days before the live
poultry dealer executes the broiler
growing arrangement (provided that the
grower may waive up to 7 calendar days
of that time period):
(i) A true, written copy of the
renewed, revised, replacement, or new
broiler growing arrangement.
(ii) The Live Poultry Dealer Disclosure
Document, as described in paragraphs
(b), (c), and (d) of this section.
(2) When a live poultry dealer seeks
to enter a broiler growing arrangement
with a broiler grower or prospective
broiler grower that will require an
original capital investment, the live
poultry dealer must provide the
following to the broiler grower or
prospective broiler grower
simultaneously with the housing
specifications:
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(i) A copy of the broiler growing
arrangement that is affiliated with the
current housing specifications.
(ii) The Live Poultry Dealer Disclosure
Document, as described in paragraphs
(b), (c), and (d) of this section.
(iii) A letter of intent that can be
relied upon to obtain financing for the
original capital investment.
(3) When a live poultry dealer seeks
to offer or impose modifications to
existing housing specifications that
could reasonably require a broiler
grower or prospective broiler grower to
make an additional capital investment,
the live poultry dealer must provide the
following to the broiler grower or
prospective broiler grower
simultaneously with the modified
housing specifications:
(i) A copy of the broiler growing
arrangement that is affiliated with the
modified housing specifications.
(ii) The Live Poultry Dealer Disclosure
Document, as described in paragraphs
(b), (c), and (d) of this section.
(iii) A letter of intent that can be
relied upon to obtain financing for the
additional capital investment.
(b) Prominent Disclosures. The Live
Poultry Dealer Disclosure Document
must include a cover page followed by
the disclosures as required in
paragraphs (c) and (d) of this section.
The order, form, and content of the
cover page shall be and include:
(1) The title ‘‘LIVE POULTRY
DEALER DISCLOSURE DOCUMENT’’ in
capital letters and bold type.
(2) The live poultry dealer’s name,
type of business organization, principal
business address, telephone number,
email address, and, if applicable,
primary internet website address.
(3) The length of the term of the
broiler growing arrangement.
(4) The following statement: ‘‘The
income from your poultry farm may be
significantly affected by the number of
flocks the poultry company places on
your farm each year, the density or
number of birds placed with each flock,
and the target weight at which poultry
is caught. The poultry company may
have full discretion and control over
these and other factors. Please carefully
review the information in this
document.’’
(5) The following minimums
established under the terms of the
broiler growing arrangement:
(i) The minimum number of
placements on the broiler grower’s farm
annually.
(ii) The minimum stocking density for
each flock to be placed on the broiler
grower’s farm.
(6) The applicable of the following
two statements:
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(i) ‘‘This disclosure document
summarizes certain provisions of your
broiler growing arrangement and other
information. You have the right to read
this disclosure document and all
accompanying documents carefully. At
least 14 calendar days before the live
poultry dealer executes the broiler
growing arrangement (provided that the
grower may waive up to 7 calendar days
of that time period), the poultry
company is required to provide you
with: (1) this disclosure document, and
(2) a copy of the broiler growing
arrangement.’’ or
(ii) ‘‘This disclosure document
summarizes certain provisions of your
broiler growing arrangement and other
information. You have the right to read
this disclosure document and all
accompanying documents carefully. The
live poultry dealer is required to
provide this disclosure document to you
simultaneously with (a) a copy of the
broiler growing arrangement, (b) any
new or modified housing specifications
that would require you to make an
original or additional capital
investment, and (c) a letter of intent.’’
(7) The following statement: ‘‘Even if
the broiler growing arrangement
contains a confidentiality provision, by
law you still retain the right to discuss
the terms of the broiler growing
arrangement and the Live Poultry Dealer
Disclosure Document with a Federal or
State agency, your financial advisor or
lender, your legal advisor, your
accounting services representative,
other growers for the same live poultry
dealer, and your immediate family or
business associates. A business
associate is a person not employed by
you but with whom you have a valid
business reason for consulting when
entering into or operating under a
broiler growing arrangement.’’
(8) The following statement in bold
type: ‘‘Note that USDA has not verified
the information contained in this
document. If this disclosure by the live
poultry dealer contains any false or
misleading statement or a material
omission, a violation of Federal and/or
State law may have occurred.’’
(c) Required disclosures following the
cover page. The live poultry dealer shall
disclose, in the Live Poultry Dealer
Disclosure Document following the
cover page, the following information:
(1) A summary of litigation over the
prior 5 years between the live poultry
dealer and any broiler grower, including
the nature of the litigation, its location,
the initiating party, a brief description
of the controversy, and any resolution.
(2) A summary of all bankruptcy
filings in the prior 5 years by the live
poultry dealer and any parent,
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subsidiary, or related entity of the live
poultry dealer.
(3) A statement that describes the live
poultry dealer’s policies and procedures
regarding the potential sale of the
broiler grower’s facility or assignment of
the broiler growing arrangement to
another party, including the
circumstances under which the live
poultry dealer will offer the successive
buyer a broiler growing arrangement.
(4) A statement describing the live
poultry dealer’s policies and
procedures, as well as any appeal rights
arising from the following events
described in paragraphs (c)(4)(i) through
(c)(4)(vi) of this section. If no policy or
procedure exists, the live poultry dealer
will acknowledge ‘‘no policy exists’’
relating to the items in paragraphs
(c)(4)(i) through (c)(4)(vi) of this section.
(i) Increased lay-out time.
(ii) Sick, diseased, and high earlymortality flocks.
(iii) Natural disasters, weather events,
or other events adversely affecting the
physical infrastructure of the local
complex or the grower facility.
(iv) Other events potentially resulting
in massive depopulation of flocks,
affecting grower payments.
(v) Feed outages, including outage
times.
(vi) Grower complaints relating to
feed quality, formulation, or suitability.
(5) A table showing the average
annual broiler grower turnover rates for
the previous calendar year and the
average of the 5 previous calendar years
at a company level and at a local
complex level.
(d) Financial Disclosures. The live
poultry dealer must include in the Live
Poultry Dealer Disclosure Document the
following information:
(1) Tables showing average annual
gross payments to broiler growers at the
local complex for each of the 5 previous
years. The tables must express average
payments in U.S. dollars per farm
facility square foot. The tables must be
organized to present the following
elements:
(i) Year.
(ii) Housing specification tier (lowest
to highest).
(iii) Distribution of payments,
specifically either—
(A) Quintile (lowest to highest), for a
local complex comprising 10 or more
growers, or
(B) Mean and one standard deviation
from the mean, for a local complex
comprising 9 or fewer growers.
(2) If poultry housing specifications
for broiler growers under contract with
the complex are modified such that an
additional capital investment may be
required, or if the 5-year averages
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provided under paragraph (d)(1) of this
section do not accurately represent
projected grower gross annual payments
under the terms of the applicable broiler
growing arrangement for any reason, the
live poultry dealer must provide the
following information:
(i) Tables providing projections of
average annual gross payments to
broiler growers under contract with the
complex with the same housing
specifications for the term of the broiler
growing arrangement at five quintile
levels or by mean and standard
deviation expressed as dollars per farm
facility square foot.
(ii) An explanation of why the annual
gross payment averages for the previous
5 years, as provided under paragraph
(d)(1) of this section, do not provide an
accurate representation of projected
future payments, including the basic
assumptions underlying the projections
provided under paragraph (d)(2)(i) of
this section.
(3) A summary of information the live
poultry dealer collects or maintains
relating to grower variable costs
inherent in broiler production.
(4) Current contact information for the
State university extension service office
or the county farm advisor’s office that
can provide relevant information about
broiler grower costs and broiler farm
financial management in the broiler
grower’s geographic area.
(e) Small Live Poultry Dealer
Financial Disclosures. A live poultry
dealer engaged in the production of
broilers is exempt from the
requirements in paragraph (a)(1) of this
section if the live poultry dealer,
together with all companies controlled
by or under common control with the
live poultry dealer, slaughters fewer
than 2 million live pounds of broilers
weekly (104 million pounds annually).
(f) Governance and Certification. (1)
The live poultry dealer engaged in the
production of broilers must establish,
maintain, and enforce a governance
framework that is reasonably designed
to:
(i) Audit the accuracy and
completeness of the disclosures
required under paragraphs (a) through
(d) of this section.
(ii) Ensure compliance with all
obligations under the Packers and
Stockyards Act and regulations
thereunder.
(2) The principal executive officer or
officers, or persons performing similar
functions, must certify in the Live
Poultry Dealer Disclosure Document
that the live poultry dealer has
established, maintains, and enforces the
governance framework and that, based
on the officer’s knowledge, the Live
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83293
Poultry Dealer Disclosure Document
does not contain any untrue statement
of a material fact or omit to state a
material fact which would render it
misleading.
(g) Receipt by Growers. (1) The Live
Poultry Dealer Disclosure Document
must include a broiler grower’s
signature page that contains the
following statement: ‘‘If the live poultry
dealer does not deliver this disclosure
document within the timeframe
specified herein, or if this disclosure
document contains any false or
misleading statement or a material
omission (including any discrepancy
with other oral or written statements
made in connection with the broiler
growing arrangement), a violation of
Federal and State law may have
occurred. Violations of Federal and
State laws may be determined to be
unfair, unjustly discriminatory, or
deceptive and unlawful under the
Packers and Stockyards Act, as
amended. You may file a complaint at
farmerfairness.gov or call 1–833–DIAL–
PSD (1–833–342–5773) if you suspect a
violation of the Packers and Stockyards
Act or any other Federal law governing
fair and competitive marketing,
including contract growing, of livestock
and poultry. Additional information on
rights and responsibilities under the
Packers and Stockyards Act may be
found at www.ams.usda.gov.’’
(2) The live poultry dealer must
obtain the broiler grower’s or
prospective broiler grower’s dated
signature on the broiler grower’s
signature page in paragraph (g)(1) of this
section as evidence of receipt or obtain
alternative documentation to evidence
delivery and that best efforts were used
to obtain grower receipt. The live
poultry dealer must provide a copy of
the dated signature page or alternative
documentation to the broiler grower or
prospective broiler grower and must
retain a copy of the dated signature page
or alternative documentation in the
dealer’s records for 3 years following
expiration, termination, or non-renewal
of the broiler growing arrangement.
(3) Information in the Live Poultry
Dealer Disclosure Document must be
presented in a clear, concise, and
understandable manner for growers.
Live poultry dealers may refer to Form
PSD 6100 for further instructions on the
presentation of information and certain
calculations.
(4) The live poultry dealer must make
reasonable efforts to ensure that growers
are aware of their right to request
translation assistance, and to assist the
grower in translating the Disclosure
Document at least 14 calendar days
before the live poultry dealer executes
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(b) Placement Disclosure. Within 24
hours of flock delivery to a broiler
grower’s facility, the live poultry dealer
must provide all the following
information to the broiler grower
regarding the placement:
(1) The stocking density of the
placement.
(2) Names and all ratios of breeds of
the poultry delivered.
(3) If the live poultry dealer has
determined the sex of the birds, all
ratios of male and female poultry
delivered.
(4) The breeder facility identifier.
(5) The breeder flock age.
(6) Information regarding any known
health impairments of the breeder flock
or of the poultry delivered.
(7) Adjustments, if any, that the live
poultry dealer may make to the
calculation of the grower’s pay based on
the inputs in paragraphs (b)(1) through
(b)(6) of this section.
(c) Poultry grower ranking system
settlement documents. In addition to the
requirements of § 201.100 of this part, a
live poultry dealer must provide
disclosures to all broiler growers on the
grouping or ranking sheets as described
in paragraphs (c)(1) and (c)(2) of this
section. The disclosures need not show
the names of other growers.
(1) Live poultry dealers must disclose
the housing specification for each
broiler grower grouped or ranked during
the specified period.
(2) Live poultry dealers must disclose
all the following information to each
broiler grower participant ranked under
a poultry grower ranking system:
(i) The stocking density for each
placement in the ranking.
(ii) The names and all ratios of breeds
of the poultry for each placement in the
ranking.
(iii) If the live poultry dealer has
determined the sex of the birds, all
ratios of male and female poultry for
each placement in the ranking.
(iv) All breeder facility identifiers for
each placement in the ranking.
the broiler growing arrangement that
does not contemplate modifications to
the existing housing specifications
(provided that the grower may waive up
to 7 calendar days of that time period)
or where modifications to the existing
housing specifications are contemplated
when the live poultry dealer provides
the grower with the Disclosure
Document. Reasonable efforts include
but are not limited to providing current
contact information for professional
translation service providers, trade
associations with translator resources,
relevant community groups, or any
other person or organization that
provides translation services in the
broiler grower’s geographic area. A live
poultry dealer may not restrict a broiler
grower or prospective broiler grower
from discussing or sharing the
Disclosure Document for purposes of
translation with a person or
organization that provides language
translation services.
(h) Contract terms. A live poultry
dealer engaged in the production of
broilers must specify in the true written
copy of the broiler growing arrangement
the following:
(1) The minimum number of
placements of poultry at the broiler
grower’s facility annually.
(2) The minimum stocking density for
each flock placed with the broiler
grower under the broiler growing
arrangement.
■ 5. Add § 201.104 to read as follows:
§ 201.104 Disclosures for broiler grower
ranking system payments.
(a) Poultry grower ranking system
records. If a live poultry dealer engaged
in the production of broilers uses a
poultry grower ranking system to
calculate broiler grower payments, the
live poultry dealer must produce
records in accordance with paragraphs
(b) and (c) of this section. The live
poultry dealer must maintain these
records for 5 years.
(v) The breeder flock age(s) for each
placement in the ranking.
(vi) The number of feed disruptions
each ranked broiler grower endured
during the growout period where the
grower was completely out of feed for
12 hours or more.
Note: The following appendices will not
appear in the Code of Federal Regulations.
Appendix 1. Details of the Estimated
One-Time, First-Year Costs and OnGoing Annual Costs of Providing
Disclosure Documents Required in
§§ 201.102 and 201.104
Table 1 below provides the details of the
estimated one-time, first-year costs to live
poultry dealers (LPD) of providing disclosure
documents required in § 201.102. AMS
expects that the direct costs will consist
entirely of the value of the time required to
produce and distribute the disclosures and
maintain proper records. The number of
hours the second column were provided by
AMS subject matter experts. These experts
were auditors and supervisors with many
years of experience in auditing live poultry
dealers for compliance with the Act. They
provided estimates of the average amount of
time that would be necessary for each live
poultry dealer to meet each of the elements
listed in the ‘‘Regulatory Requirements’’
column. Estimates for the value of the time
are U.S. Bureau of Labor Statistics
Occupational Employment and Wage
Statistics estimated released May 2022. Wage
estimates are marked up 41.82 percent to
account for benefits. The ‘‘Adjustment’’
column allows for estimation of costs that
will only apply to a subset of the poultry
growers or to the live poultry dealers. A
blank value in the Adjustment column
indicates that no adjustments were made to
the costs. Each adjustment is different and
described in the relevant footnote. Expected
costs for each ‘‘Regulatory Requirement’’ and
are listed in the ‘‘Expected Cost’’ column.
Summing the values in the ‘‘Expected Cost’’
column provides the total expected first-year,
one-time costs for setting-up and producing
the disclosure documents associated with
§ 201.102.
TABLE 1—EXPECTED FIRST-YEAR DIRECT COSTS ASSOCIATED WITH § 201.102
Number of
hours
required for
each LPD
Regulatory requirement
201.102(b)(1)–(8) ................................
201.102(c)(1)–(3) .................................
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201.102(c)(4) .......................................
201.102(c)(5) .......................................
201.102(d)(1)(2)(i) ...............................
201.102(d)(1)(2)(ii)–(v) ........................
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1
4
10
5
10
2
4
1
1
30
8
22
60
16
Expected
wage
($)
Profession
Manager ..............................................
Lawyer .................................................
Manager ..............................................
Administrative ......................................
Lawyer .................................................
Manager ..............................................
Manager ..............................................
Lawyer .................................................
Manager ..............................................
Manager ..............................................
Administrative ......................................
Information Tech .................................
Manager ..............................................
Administrative ......................................
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Number of
LPDs
84.27
131.38
84.27
41.71
131.38
84.27
84.27
131.38
84.27
84.27
41.71
92.91
84.27
41.71
E:\FR\FM\28NOR2.SGM
42
42
42
42
42
a 188
42
42
a 188
b 27
b 27
b 27
42
42
28NOR2
Adjustment
(percent)
........................
........................
........................
........................
........................
........................
........................
........................
........................
c 90
c 90
c 90
d5
d5
Expected cost
($)
3,539
22,072
35,393
8,759
55,180
31,685
14,157
5,518
15,843
61,432
8,108
49,667
10,618
1,401
Federal Register / Vol. 88, No. 227 / Tuesday, November 28, 2023 / Rules and Regulations
83295
TABLE 1—EXPECTED FIRST-YEAR DIRECT COSTS ASSOCIATED WITH § 201.102—Continued
Number of
hours
required for
each LPD
Regulatory requirement
Number of
LPDs
Adjustment
(percent)
d5
Expected cost
($)
44
20
5
15
6
2
0.5
0.5
40
20
10
10
1
1
1
1
Information Tech .................................
Manager ..............................................
Administrative ......................................
Information Tech .................................
Manager ..............................................
Administrative ......................................
Manager ..............................................
Administrative ......................................
Manager ..............................................
Lawyer .................................................
Administrative ......................................
Information Tech .................................
Manager ..............................................
Administrative ......................................
Manager ..............................................
Lawyer .................................................
92.91
84.27
41.71
92.91
84.27
41.71
84.27
41.71
84.27
131.38
41.71
92.91
84.27
41.71
84.27
131.38
42
42
42
42
42
42
42
42
42
42
42
42
42
42
42
42
e5
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
8,584
3,539
438
2,927
21,236
3,504
1,770
876
141,572
110,360
17,518
39,020
3,539
1,752
3,539
5,518
........................
.............................................................
........................
........................
........................
f 689,063
201.102(d)(3) .......................................
201.102(d)(4) .......................................
201.102(d)(5) .......................................
201.102(f) ............................................
201.102(g)(1)(2) ..................................
201.102(i)(2) ........................................
Total Cost .....................................
Expected
wage
($)
Profession
e5
e5
a AMS
estimated a manager’s time required for each of the 188 broiler complexes rather than the 42 live dealer firms.
only applies to live poultry dealers that process more than 2 million pounds of broilers per week.
estimated costs by 10 percent to exclude the 5 percent for the estimated proportion of growers that require upgrades to poultry housing and 5 percent
for the estimated proportion of growers that enter a contract for the first time.
d Estimates costs for the 5 percent of the growers that require upgrades to poultry housing and enter into contracts for the first time.
e Estimates costs for the 5 percent of the growers that require upgrades to poultry housing.
f Total may not sum due to rounding.
b 201.102(d)(1)(i)
c Reduces
Table 2 provides the details of the
estimated ongoing costs of providing
disclosure documents required in § 201.102.
Table 2 is laid out the same as Table 1. AMS
subject matter experts provided estimates in
the second column of the average amount of
time that would be necessary for each live
poultry dealer to meet each of the elements
listed in the ‘‘Regulatory Requirements’’
column. Estimates for the value of the time
are from U.S. Bureau of Labor Statistics
Occupational Employment and Wage
Statistics released May 2022. Wage estimates
are marked up 41.82 percent to account for
benefits. The ‘‘Adjustment’’ column allows
for estimation of costs that will only apply
to a subset of the poultry growers or to the
live poultry dealers. Expected costs for each
‘‘Regulatory Requirement’’ and are listed in
the ‘‘Expected Cost’’ column. Summing the
values in the ‘‘Expected Cost’’ column
provides the total expected costs for
producing and distributing the disclosure
documents associated with § 201.102 on an
ongoing basis.
TABLE 2—EXPECTED ONGOING DIRECT COSTS ASSOCIATED WITH § 201.102
Number of
hours
required for
each LPD
Regulatory requirement
201.102(a)(1) .......................................
0.08
201.102(a)(2) .......................................
0.08
201.102(a)(3) .......................................
0.08
201.102(b) ...........................................
0.5
0.5
1
1
1
0.5
1
0.5
0.5
0.17 (10 min.)
15
3
6
30
6
12
10
2
4
0.25
0.25
0.25
0.25
20
5
201.102(c)(1)–(3) .................................
201.102(c)(4) .......................................
201.102(c)(5) .......................................
201.102(d) ...........................................
201.102(d)(1)(i) ....................................
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201.102(d)(1)(ii)–(v) .............................
201.102(d)(2) .......................................
201.102(d)(3) .......................................
201.102(d)(4) .......................................
201.102(f) ............................................
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Expected
wage
($)
Profession
Evenly distributed among management, administrative, and information tech.
Evenly distributed among management, administrative, and information tech.
Evenly distributed among management, administrative, and information tech.
Manager ..............................................
Administrative ......................................
Manager ..............................................
Administrative ......................................
Lawyer .................................................
Manager ..............................................
Manager ..............................................
Lawyer .................................................
Manager ..............................................
Administrative ......................................
Manager ..............................................
Administrative ......................................
Information Tech .................................
Manager ..............................................
Administrative ......................................
Information Tech .................................
Manager ..............................................
Administrative ......................................
Information Tech .................................
Manager ..............................................
Administrative ......................................
Manager ..............................................
Administrative ......................................
Manager ..............................................
Lawyer .................................................
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Number of
LPDs/number
of contracts
Adjustment
(percent)
Expected cost
($)
a 72.96
19,417
b 74.72
88,212
1 72.96
19,808
c5
6,022
1 72.96
19,808
d5
6,022
84.27
41.71
84.27
41.71
131.38
84.27
84.27
131.38
84.27
41.71
84.27
41.71
92.91
84.27
41.71
92.91
84.27
41.71
92.91
84.27
41.71
84.27
41.71
84.27
131.38
42
42
42
42
42
e 188
42
42
e 188
e 188
f 27
f 27
f 27
42
42
42
f 27
f 27
f 27
42
42
42
42
42
42
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
g 90
g 90
g 90
h5
h5
h5
i5
i5
i5
........................
........................
........................
........................
........................
........................
1,770
876
3,539
1,752
5,518
7,921
3,539
2,759
7,921
1,307
30,716
3,041
13,546
5,309
526
2,341
1,770
175
780
885
438
885
438
70,786
27,590
E:\FR\FM\28NOR2.SGM
28NOR2
83296
Federal Register / Vol. 88, No. 227 / Tuesday, November 28, 2023 / Rules and Regulations
TABLE 2—EXPECTED ONGOING DIRECT COSTS ASSOCIATED WITH § 201.102—Continued
Number of
hours
required for
each LPD
Regulatory requirement
Expected
wage
($)
Profession
Number of
LPDs/number
of contracts
42
42
Adjustment
(percent)
Expected cost
($)
201.102(g) ...........................................
3
4
0.25
Administrative ......................................
Information Tech .................................
Administrative ......................................
41.71
92.91
41.71
e 188
........................
........................
........................
5,255
15,608
1,960
Total Cost .....................................
........................
.............................................................
........................
........................
........................
j 319,206
a $72.96
is the average of the average wages for poultry processing managers, administrative professionals, and information technology staff at $84.27, $41.71,
and $92.91 respectively.
b 74.72 is the percentage of the existing poultry grower contracts that are expected to come up for renewal each year. It includes all flock-to-flock and single year
contracts as well as longer term contracts that are expected to expire within a year.
c Estimates cost for the 5 percent of the growers that require upgrades to poultry housing.
d Estimates costs for only the 5 percent of growers that that enter contract for the first time.
e AMS estimated a manager’s time required for each of the 188 broiler complexes rather than the 42 live dealer firms.
f 201.102(d)(1)(i) only applies to live poultry dealers that process more than 2 million pounds of poultry per week.
g Reduces estimated cost by 10 percent to exclude the 5 percent for the estimated proportion of growers that require upgrades to poultry housing and 5 percent for
the estimated proportion of growers that enter a contract for the first time.
h Estimates cost for the 5 percent of the growers that require upgrades to poultry housing and enter into contracts for the first time.
i Estimates cost for the 5 percent of the growers that require upgrades to poultry housing.
j Total may not sum due to rounding.
Table 3 below provides the details of the
estimated one-time, first-year costs to live
poultry dealers of providing disclosure
documents required in § 201.104. Like the
previous tables, AMS subject matter experts
provided estimates in the second column of
the average amount of time that would be
necessary for each live poultry dealer to meet
each of the elements listed in the ‘‘Regulatory
Requirements’’ column. Values in the
‘‘Expected Wage’’ column are taken from U.S.
Bureau of Labor Statistics Occupational
Employment and Wage Statistics released
May 2022. Wage estimates are marked up
41.82 percent to account for benefits. The
number of LPDs is the number of live poultry
dealers that filed annual reports with AMS
for their 2021 fiscal years. ‘‘Expected Cost’’
is the estimate of the cost of each ‘‘Regulatory
Requirement.’’ Summing the ‘‘Expected
Cost’’ column provides the total expected
first-year, one-time costs for setting-up and
producing the disclosure documents
associated with § 201.104.
TABLE 3—ONE TIME FIRST-YEAR COSTS ASSOCIATED WITH § 201.104
Number of
hours per LPD
Regulatory requirement
201.104(a) .........................................................
Expected cost
($)
Manager ............................................................
Administrative ...................................................
Information Technology ....................................
Manager ............................................................
Administrative ...................................................
Information Technology ....................................
Manager ............................................................
Administrative ...................................................
Information Technology ....................................
84.27
41.71
92.91
84.27
41.71
92.91
84.27
41.71
92.91
42
42
42
42
42
42
42
42
42
7,079
7,007
7,804
17,696
3,504
70,237
28,314
8,759
85,845
........................
...........................................................................
........................
........................
a 236,244
201.104(c) ..........................................................
a Total
Number of
LPDs
2
4
2
5
2
18
8
5
22
201.104(b) .........................................................
Total Cost ...................................................
Expected
wage
($)
Profession
may not sum due to rounding.
Table 3 below provides the details of the
estimated ongoing costs of providing
disclosure documents required in § 201.104.
AMS subject matter experts provided
estimates in the second column of the
average amount of time that would be
necessary for each live poultry dealer to meet
each of the elements listed in the ‘‘Regulatory
Requirements’’ column. They also provided
the expected number of tournaments per
plant. The number of processing plants was
tallied from the annual reports that live
poultry dealers file with AMS. Values in the
‘‘Expected Wage’’ column were found in U.S.
Bureau of Labor Statistics Occupational
Employment and Wage Statistics released
May 2022. Wage estimates are marked up
41.82 percent to account for benefits.
Multiplying across the row provides the
‘‘Cost’’ for each ‘‘Regulatory Requirement,’’
and summing the ‘‘Cost’’ column provides
the total expected costs for producing and
distributing the disclosure documents
associated with § 201.104 on an ongoing
basis.
TABLE 4—ONGOING EXPECTED COSTS ASSOCIATED WITH § 201.104
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Regulatory requirement
Hours
201.104(b) .............................
0.1
201.104(c) .............................
0.1
Total Cost .......................
........................
Number of
tournaments
per plant
Number of
plants
Profession
Avg. wage
($)
Cost
($)
188
1.35
52
a 72.96
96,291
188
1.35
52
a 72.96
96,291
........................
........................
........................
........................
192,582
Evenly distributed among
management, administrative, and information tech.
Evenly distributed among
management, administrative, and information tech.
................................................
Weeks in a
year
a $72.96
is the average of the average wages for poultry processing managers, administrative professionals, and information technology staff at $84.27, $41.71,
and $92.91 respectively.
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Federal Register / Vol. 88, No. 227 / Tuesday, November 28, 2023 / Rules and Regulations
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Appendix 2. Technical Overview of
Estimates of the Economic Benefits of
Reduction in Profit Uncertainty to
Contract Broiler Growers With Rule
Changes Promoting Greater
Transparency in Returns
A potential benefit of the contract
disclosure rules providing increased
transparency would be that doing so could
lower the uncertainty in the contract broiler
grower’s profit stream. According to
economic principles, a risk averse producer
will benefit economically from a reduction in
profit risk, a component of the proposed
rule’s benefits, discussed above. Given
assumptions about the level of risk aversion
of the producer, the distribution of contract
grower profit, and the grower’s utility
function (an economic concept that in this
case measures the grower’s preferences over
a set of goods), it is possible to calculate the
range of economic benefits to contract
growers of decreased profit uncertainty
associated with greater transparency. For this
analysis, we assume that the producer
maximizes an absolute risk aversion (ARA)
utility function. The alternative to an
absolute risk aversion function is a relative
risk aversion function (RRA). For the former,
the coefficient of risk aversion is the negative
of the ratio of the second to first derivatives
of the utility function with respect to the
good (e.g., wealth or consumption) while the
latter multiples this ratio times the level of
the good. We could find only two papers that
used either RRA or ARA for examining North
American poultry contract growers. Hu
(2015) and Hegde and Vukina (2003) assume
CARA for U.S. broiler contract growers. The
former is an econometric exercise that does
not provide sufficient information to obtain
a risk aversion parameter for use in a
scenario analysis and the latter is simply a
simulation exercise of a wide range of
arbitrary parameter values for the absolute
risk aversion parameters without referring
them to a given range of risk aversion
premium (RAP) levels to provide context.
A benefit of relative risk aversion is that
the relative risk aversion parameter is scale
free, which represents a convenience for
analysis. We assume that one reason for the
greater use of relative risk aversion compared
to absolute risk aversion is that it saves the
researcher the work of having to solve the
nonlinear equations necessary to scale the
risk parameters to the size of the risky bet.
A nice property of the absolute risk aversion
is that the preferences for risk aversion are
directly reflective of where the researcher
wants risk preferences to be on a 0%-100%
percentage of the standard deviation of the
gamble that a risk averter would pay to avoid
the gamble altogether. With relative risk
aversion in contrast, the researcher instead
refers to say, ‘‘typical’’ values of the relative
risk aversion coefficient. Relative risk
aversion measure is sensitive to what is
included or excluded when defining or
measuring the outcome variable, e.g.,
whether wealth or profits (Meyer and Meyer,
2005). When the focus is on representing and
measuring the risk preferences of the
decision maker, as it is in the analysis of
broiler growers, either relative or absolute
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risk aversion is sufficient as the basis for the
analysis, and since simple arithmetic allows
one to go from model to the other, only one
of these approaches is needed (ibid.).
Another decision to be made is how the
producer’s risk aversion changes with
wealth. Under constant absolute risk aversion
(CARA), the grower’s risk aversion does not
change as wealth increases. Decreasing
absolute risk aversion (DARA) assumes that
the grower’s risk aversion increases as wealth
increases. Another possibility is that the
grower’s risk aversion is increasing in wealth
(IARA). While no evidence exists one way or
another for how risk preferences of broiler
contract growers change with wealth, the
agricultural economics literature generally
assumes DARA over IARA. We have no
information one way or another on how the
risk aversion of contract growers changes
with wealth, and hence, we use both CARA
and DARA.
First, we assume that the grower has
constant absolute risk aversion (CARA) and
makes management decisions to maximize
the expected value of a negative exponential
utility function over N simulated returns, or
U(w) = (1¥e¥lw)
where l is the grower’s absolute risk aversion
coefficient and w is the grower’s wealth that
proxies for a set of goods and services. The
higher is l, the higher the grower’s aversion
variability in w. Wealth w is a stochastic
variable defined as the grower’s initial (fixed)
wealth w0 plus the stochastic net returns. A
negative exponential utility function
conforms to the hypothesis that growers
prefer less risk to more given the same
expected, or average, return.
The specific functional form in the
equation above also assumes that growers
view the riskiness of profit variability the
same without regard for their level of wealth,
i.e., CARA (e.g., Goodwin, 2009). A risk
averse grower will be willing to accept lower
mean net returns in exchange for lower
variability in returns w. Let U0 be the
grower’s current utility and U1 be the
grower’s utility with the new contract rules
and their associated lower variability of w.
Assuming mean w is constant between states,
for the risk averse grower, U1 > U0. The
question then becomes how to translate the
benefit U1–U0 into a dollar value. We define
the Risk Premium (RP), or the dollar benefit
to growers of decreased profit risk, as the
amount of mean profit they would be willing
to give up such that U1 = U0, i.e., such that
they are indifferent between the two states
(e.g., Sproul et al. 2013; Schnitkey et al.,
2003).188
The first step is to construct an empirical
distribution of grower profit or net revenue.
The market value of contracted share of
broilers in 2020 was $20.9 billion given
NASS data on their total value of production
and the 96.3 percent shares that are contract.
188 This Risk Premium may be considered a
special case of the compensating variation concept
in economics. With the proposed rule changes
leading to greater transparency in returns, the
grower would be getting a decrease in revenue
variability but would not have to pay to get this.
Hence the Risk Premium is a measure of benefit to
the grower of being under the new contract rules.
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83297
Eleven percent of this value goes to contract
growers, based on the ratio of the USDA’s
Livestock Indemnity Program (LIP) payment
rate for contract growers divided by the rate
for livestock owners, leading to a mean gross
revenue of $2.3 billion for broiler growers.
Variable and fixed costs are assumed to be
non-stochastic and are set at 24 and 19
percent of the 2020 mean gross revenue,
based on the proportions from Table 1 in
Maples et al. (2020), and net revenue is the
gross revenue less the variable and fixed
costs. Initial (non-stochastic) wealth w0 is set
equal to 2020 mean net revenue.189 Grower
net revenue is assumed to follow a normal
distribution. A normal distribution of net
revenue will approximate the distribution in
cumulative distribution function of net
revenue in Figure 1 of Maples et al. (2020)
with a coefficient of variation of revenue of
0.16.190 Given this estimate of the coefficient
of variation of net revenue, and the mean net
revenue of $1.33 billion for broiler contract
grower net revenue, the standard deviation
can be simply found as the coefficient of
variation of net revenue times this mean.
The associated absolute risk aversion
coefficient l is associated with a grower’s
risk aversion premium (RAP), a value that
varies between 0 and 100 percent (of the
potential loss) and reflects the amount the
grower is willing to pay to avoid the potential
loss, with higher values reflecting higher risk
aversion. The l is linked to the RAP on a
theoretical basis outlined in Babcock, Choi,
and Feinerman (1993). The associated
absolute risk aversion coefficient l is scaled
to the standard deviation of net revenue
using the approach in Babcock, Choi, and
Feinerman (1993). Note that since l is scaled
to the standard deviation of net revenue, the
calculation of the total Risk Premium across
all growers, or RP = Si RPi, i = 1 . . . , G
equal size growers is invariant to
assumptions about the total number of
growers G, whether set to an arbitrary value
or to the 16,524 contract broiler growers per
the 2017 Agricultural Census.191 The
estimated value of l is 1.10E–09, 1.10E–06,
and 1.1E–05 for G = 1, 1,000, and 10,000
equal sized growers, respectively, with an
RAP of 20 percent.192 A von NeumannMorgenstern expected utility is estimated
over N = 1,000 draws of wj where EU0 is
189 The academic literature tends to be vague as
to setting w0, with it either set at $0 or some
unspecified amount. In principle, it could be set at
the producer’s net equity going into the year, but
if one wants initial wealth for the proposes of utility
analysis to be relative liquid assets, net equity
maybe too high a value.
190 To put this coefficient of variation of broiler
revenue of 0.16 in perspective, note that the lowerend estimate of the coefficient of variation of farm
level revenue for major row crops is considerably
higher as one might expect, at 0.25 even with crop
insurance (Cooper 2010; Belasco, Cooper, and
Smith, 2019).
191 USDA, NASS. 2017 Census of Agriculture:
United States Summary and State Data, (April
2019).
192 For estimation, G = 10,000 is used to allow for
a larger λ and reduce the potential for machine error
in rounding.
E:\FR\FM\28NOR2.SGM
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83298
Federal Register / Vol. 88, No. 227 / Tuesday, November 28, 2023 / Rules and Regulations
and EU1 is
where w1j are draws from the normal
distribution given an assumption for a lower
coefficient of variation of gross revenue with
the new rules, but with the same initial
wealth, costs, and mean gross revenue as in
the base case. The risk premium RP that
solves EU1(w1) = EU0(w) is found using a
numerical search routine.
For the DARA scenario, we follow
Hennessy (1998), and the CARA utility
function becomes
U (w) = (1¥e¥lw) + βw
where β is greater than zero. Let ρ(w) be the
risk aversion coefficient under DARA, i.e.,
r(w) is decreasing in w. Hennessy (ibid.)
shows that ρ(w) is a function of λ and β as
Per Hennessy (ibid.), we solve for the values
of λ and β to simultaneously satisfy a ρ(w =
0) associated with a RAP of 40 percent and
a ρ(w = w) associated with a RAP of 20
percent. Like Hennessy (ibid.), we assume
that the Babcock, Choi, and Feinerman
approach to relate the risk coefficient to the
RAP level holds approximately for DARA
preferences. The rest of the approach for
finding the risk premium RP that solves
EU1(w1) = EU0(w) is the same as for the CARA
scenarios. Appendix Table A1 summarizes
the parameters and risk attitudes used in the
analysis, with the RAP value denoted as θ.
APPENDIX TABLE A1—NATURE OF CHOSEN UTILITY FUNCTIONS
lotter on DSK11XQN23PROD with RULES2
λ .................................................................................................................................
β .................................................................................................................................
θ[w = 0] ......................................................................................................................
θ[w = w] .....................................................................................................................
ρ[w = 0] ......................................................................................................................
ρ[w = w] .....................................................................................................................
References
Babcock, B.E. Choi, and E. Feinerman, ‘‘Risk
and Probability Premiums for CARA
Utility Functions’’, J. Agric. & Res. Econ.,
Vol 18(1):17–24. 1993.
Belasco, Eric, Joseph Cooper, and Vincent
Smith. ‘‘The Development of a Weatherbased Crop Disaster Program,’’ American
Journal of Agricultural Economics Vol.
102/1(August 2019):240–258.
Cooper, Joseph. ‘‘Average Crop Revenue
Election: A Revenue-Based Alternative to
Price-Based Commodity Payment
Programs,’’ American Journal of
Agricultural Economics, Vol. 92/4 (July
2010): 1214–1228.
Goodwin, B. ‘‘Payment Limitations and
Acreage Decisions Under Risk Aversion:
A Simulation Approach,’’ American
Journal of Agricultural Economics, 91(1)
(February 2009): 19–41.
Hegde, S. Aaron, and Tomislav Vukina. 2003.
Risk Sharing in Broiler Contracts: A
Welfare Comparison of Payment
Mechanisms Paper prepared for
presentation at the American
Agricultural Economics Association
Annual Meeting, Montreal, Canada, July
27–30, 2003.
Hennessy, D.A. 1998. ‘‘The Production
Effects of Agricultural Income Support
Policies under Uncertainty.’’ American
Journal of Agricultural Economics 80:46–
57.
Hu, W. (2015) The role of risk and riskaversion in adoption of alternative
marketing arrangements by the U.S.
farmers, Applied Economics 47:27,
2899–2912
Hurley, T., P. Mitchell, and M. Rice. ‘‘Risk
and the Value of Bt Corn,’’ Am. J. Agric.
Econ. Vol 82, no. 2 (May 2004): 345–358.
VerDate Sep<11>2014
18:08 Nov 27, 2023
Jkt 262001
1.099164E–05
0
0.20
0.20
1.099164E–05
1.099164E–05
Maples, Joshua G., Jada M. Thompson, John
D. Anderson, and David P. Anderson.
‘‘Estimating COVID–19 Impacts on the
Broiler Industry,’’ Applied Economic
Perspectives and Policy, September 9,
2020.
Mitchell, P.M. Gray, and K. Steffey. ‘‘A
Composed-Error Model for Estimating
Pest-Damage Functions and The Impact
of the Western Corn Rootworm Soybean
Variant in Illinois,’’ Amer. J. Agri. Econ.,
Vol 86, no. 2 (May 2004): 332–344.
Schnitkey, Gary, Bruce Sherrick, and Scott
Irwin. ‘‘Evaluation of Risk Reductions
Associated with Multi-Peril Crop
Insurance Products,’’ Agricultural
Finance Review, Spring 2003: 1–21.
Sproul, Thomas, David Zilberman, and
Joseph Cooper. ‘‘Deductibles versus
Coinsurance in Shallow-Loss Crop
Insurance,’’ Choices, 3rd Quarter 2013.
Appendix 3. Details of the Estimated
One-Time, First-Year Costs and OnGoing Annual Costs of Providing
Disclosure Documents Required in
§§ 201.102 and 201.104 Under the
Small Business Exemption Alternative
Costs for the alternative that would exempt
live poultry dealers that produced and
average of less than 2 million pounds of
broilers per week were estimated similarly to
cost for the §§ 201.102 and 201.104. AMS
subject matter experts provided estimates of
the average amount of time that would be
necessary for each live poultry dealer to
comply with each new requirement in
§§ 201.102 and 201.104, and the hours were
multiplied by wage estimates to arrive at an
expected cost for each regulatory element.
The tables are set up the same as before.
PO 00000
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Fmt 4701
Sfmt 4700
High and CARA
2.40788E–05
0
0.40
0.40
2.40788E–05
2.40788E–05
DARA
2.0533761e–05
3.9580000e–09
0.40
0.20
2.0529804e–05
1.0991640e–05
Multiplying across row for each regulatory
element provides the expected cost for the
element. Summing the expected costs for
element provides the total cost.
Table 1 below provides the details of the
estimated one-time, first-year costs of
providing disclosure documents required in
§ 201.102. AMS expects that the direct costs
will consist entirely of the value of the time
required to produce and distribute the
disclosures and maintain proper records. The
number of hours the second column were
provided by AMS subject matter experts.
These experts were auditors and supervisors
with many years of experience in auditing
live poultry dealers for compliance with the
Act. They provided estimates of the average
amount of time that would be necessary for
each live poultry dealer to meet each of the
elements listed in the ‘‘Regulatory
Requirements’’ column. Estimates for the
value of the time are U.S. Bureau of Labor
Statistics Occupational Employment and
Wage Statistics estimates released May 2022.
The wage estimates are marked up 41.82
percent to account for benefits. The
‘‘Adjustment’’ column allows for estimation
of costs that will only apply to a subset of
the poultry growers or to the live poultry
dealers. A blank value in the Adjustment
column indicates that no adjustments were
made to the costs. Each adjustment is
different and described in the relevant
footnote. Expected costs for each ‘‘Regulatory
Requirement’’ and are listed in the ‘‘Expected
Cost’’ column. Summing the values in the
‘‘Expected Cost’’ column provides the total
expected first-year, one-time costs for settingup and producing the disclosure documents
associated with § 201.102.
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ER28NO23.000</GPH>
Parameters and risk attitudes
Federal Register / Vol. 88, No. 227 / Tuesday, November 28, 2023 / Rules and Regulations
83299
TABLE 1—EXPECTED FIRST-YEAR DIRECT COSTS ASSOCIATED WITH § 201.102
Number of
hours
required for
each LPD
Regulatory requirement
201.102(b)(1)–(8) ................................
Adjustment
(percent)
Number of
LPDs a
Expected cost
($)
1
4
10
5
10
2
4
1
1
30
8
22
60
16
44
20
5
15
6
2
0.5
0.5
40
20
10
10
1
1
1
1
Manager ..............................................
Lawyer .................................................
Manager ..............................................
Administrative ......................................
Lawyer .................................................
Manager ..............................................
Manager ..............................................
Lawyer .................................................
Manager ..............................................
Manager ..............................................
Administrative ......................................
Information Tech .................................
Manager ..............................................
Administrative ......................................
Information Tech .................................
Manager ..............................................
Administrative ......................................
Information Tech .................................
Manager ..............................................
Administrative ......................................
Manager ..............................................
Administrative ......................................
Manager ..............................................
Lawyer .................................................
Administrative ......................................
Information Tech .................................
Manager ..............................................
Administrative ......................................
Manager ..............................................
Lawyer .................................................
84.27
131.38
84.27
41.71
131.38
84.27
84.27
131.38
84.27
84.27
41.71
92.91
84.27
41.71
92.91
84.27
41.71
92.91
84.27
41.71
84.27
41.71
84.27
131.38
41.71
92.91
84.27
41.71
84.27
131.38
27
27
27
27
27
b 121
27
27
b 121
27
27
27
27
27
27
27
27
27
27
27
27
27
27
27
27
27
27
27
27
27
........................
........................
........................
........................
........................
........................
........................
........................
........................
c 90
c 90
c 90
d5
d5
d5
f5
f5
f5
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
2,275
14,189
22,753
5,631
35,473
20,369
9,101
3,547
10,184
61,432
8,108
49,667
6,826
901
5,519
2,275
282
1,881
13,652
2,252
1,138
563
91,010
70,946
11,261
25,084
2,275
1,126
2,275
3,547
........................
.............................................................
........................
........................
........................
g 485,543
201.102(c)(1)–(3) .................................
201.102(c)(4) .......................................
201.102(c)(5) .......................................
201.102(d)(1)(2)(i) ...............................
201.102(d)(1)(2)(ii)–(v) ........................
201.102(d)(3) .......................................
201.102(d)(4) .......................................
201.102(d)(5) .......................................
201.102(f)(1)(2) ...................................
201.102(g)(1)(2) ..................................
201.102(i)(2) ........................................
Total Cost .....................................
Expected
wage
($)
Profession
a Annual
reports filed by live poultry dealers indicated 27 processed an average of more than 2 million pounds of broilers per week.
estimated a manager’s time required for each of the 121 broiler complexes rather than the 27 live dealer firms.
exempts live poultry dealers that process less than 2 million pounds of broilers per week.
d Reduces estimated costs by 10 percent to exclude the 5 percent for the estimated proportion of growers that require upgrades to poultry housing and 5 percent
for the estimated proportion of growers that enter a contract for the first time.
e Estimates costs for the 5 percent of the growers that require upgrades to poultry housing and enter into contracts for the first time.
f Estimates costs for the 5 percent of the growers that require upgrades to poultry housing.
g Total may not sum due to rounding.
b AMS
c 201.102(d)(1)(i)
Table 2 provides the details of the
estimated ongoing costs of providing
disclosure documents required in § 201.102.
Table 2 is laid out the same as Table 1. AMS
subject matter experts provided estimates in
the second column of the average amount of
time that would be necessary for each live
poultry dealer to meet each of the elements
listed in the ‘‘Regulatory Requirements’’
Expected costs for each ‘‘Regulatory
Requirement’’ and are listed in the ‘‘Expected
Cost’’ column. Summing the values in the
‘‘Expected Cost’’ column provides the total
expected costs for producing and distributing
the disclosure documents associated with
§ 201.102 on an ongoing basis.
column. Estimates for the value of the time
are from U.S. Bureau of Labor Statistics
Occupational Employment and Wage
Statistics released May 2022. The wage
estimates are marked up 41.82 percent to
account for benefits. The ‘‘Adjustment’’
column allows for estimation of costs that
will only apply to a subset of the poultry
growers or to the live poultry dealers.
TABLE 2—EXPECTED ONGOING DIRECT COSTS ASSOCIATED WITH § 201.102
Number of
hours
required for
each LPD
lotter on DSK11XQN23PROD with RULES2
Regulatory requirement
201.102(a)(1) .......................................
0.08
201.102(a)(2) .......................................
0.08
201.102(a)(3) .......................................
0.08
201.102(b) ...........................................
0.5
0.5
1
1
1
0.5
1
0.5
0.5
0.17
201.102(c)(1)–(3) .................................
201.102(c)(4) .......................................
201.102(c)(5) .......................................
201.102(d) ...........................................
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Expected
wage
($)
Profession
Evenly distributed among management, administrative, and information tech.
Evenly distributed among management, administrative, and information tech.
Evenly distributed among management, administrative, and information tech.
Manager ..............................................
Administrative ......................................
Manager ..............................................
Administrative ......................................
Lawyer .................................................
Manager ..............................................
Manager ..............................................
Lawyer .................................................
Manager ..............................................
Administrative ......................................
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Number of
LPDs/number
of contracts
Adjustment
(percent)
Expected cost
($)
a 72.96
19,417
b 74.72
88,212
a 72.96
19,417
c5
5,903
a 72.96
19,417
d5
5,903
84.27
41.71
84.27
41.71
131.38
84.27
84.27
131.38
84.27
41.71
27
27
27
27
27
e 121
27
27
e 121
e 121
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
1,138
563
2,275
1,126
3,547
5,092
2,275
1,774
5,092
840
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Federal Register / Vol. 88, No. 227 / Tuesday, November 28, 2023 / Rules and Regulations
TABLE 2—EXPECTED ONGOING DIRECT COSTS ASSOCIATED WITH § 201.102—Continued
Number of
hours
required for
each LPD
Regulatory requirement
201.102(d)(1)(i) ....................................
Expected
wage
($)
Profession
Number of
LPDs/number
of contracts
Adjustment
(percent)
f 90
Expected cost
($)
201.102(g) ...........................................
15
3
6
30
6
12
10
2
4
0.25
0.25
0.25
0.25
20
5
3
4
0.25
Manager ..............................................
Administrative ......................................
Information Tech .................................
Manager ..............................................
Administrative ......................................
Information Tech .................................
Manager ..............................................
Administrative ......................................
Information Tech .................................
Manager ..............................................
Administrative ......................................
Manager ..............................................
Administrative ......................................
Manager ..............................................
Lawyer .................................................
Administrative ......................................
Information Tech .................................
Administrative ......................................
84.27
41.71
92.91
84.27
41.71
92.91
84.27
41.71
92.91
84.27
41.71
84.27
41.71
84.27
131.38
41.71
92.91
41.71
27
27
27
27
27
27
27
27
27
27
27
27
27
27
27
27
27
e 121
........................
........................
........................
........................
........................
........................
........................
........................
........................
30,716
3,041
13,546
3,413
338
1,505
1,138
113
502
569
282
569
282
45,505
17,736
3,378
10,034
1,260
Total Cost .....................................
........................
.............................................................
........................
........................
........................
i 257,665
201.102(d)(1)(ii)–(v) .............................
201.102(d)(2) .......................................
201.102(d)(3) .......................................
201.102(d)(4) .......................................
201.102(f) ............................................
f 90
f 90
g5
g5
g5
h5
h5
h5
a $72.96
is the average of the average wages for poultry processing managers, administrative professionals, and information technology staff at $84.27, $41.71,
and $92.91 respectively.
b 74.72 is the percentage of the existing poultry grower contracts that are expected to come up for renewal each year. It includes all flock-to-flock and single year
contracts as well as longer term contracts that are expected to expire within a year.
c Estimates cost for the 5 percent of the growers that require upgrades to poultry housing.
d Estimates costs for only the 5 percent of growers that that enter contract for the first time.
e AMS estimated a manager’s time required for each of the 121 broiler complexes rather than the 27 live dealer firms.
f Reduces estimated cost by 10 percent to exclude the 5 percent for the estimated proportion of growers that require upgrades to poultry housing and 5 percent for
the estimated proportion of growers that enter a contract for the first time.
g Estimates cost for the 5 percent of the growers that require upgrades to poultry housing and enter into contracts for the first time.
h Estimates cost for the 5 percent of the growers that require upgrades to poultry housing.
i Total may not sum due to rounding.
Table 3 below provides the details of the
estimated one-time, first-year costs of
providing disclosure documents required in
§ 201.104. Like the previous tables, AMS
subject matter experts provided estimates in
the second column of the average amount of
time that would be necessary for each live
poultry dealer to meet each of the elements
listed in the ‘‘Regulatory Requirements’’
column. Values in the ‘‘Expected Wage’’
column are taken from U.S. Bureau of Labor
Statistics Occupational Employment and
Wage Statistics released May 2022. The wage
estimates are marked up 41.82 percent to
account for benefits. The number of LPDs is
the number of live poultry dealers that filed
annual reports with AMS for their 2020 fiscal
years. ‘‘Expected Cost’’ is the estimate of the
cost of each ‘‘Regulatory Requirement.’’
Summing the ‘‘Expected Cost’’ column
provides the total expected first-year, onetime costs for setting-up and producing the
disclosure documents associated with
§ 201.104.
TABLE 3—ONE TIME FIRST-YEAR COSTS ASSOCIATED WITH § 201.104
Number of
hours per LPD
Regulatory requirement
201.104(a) .........................................................
lotter on DSK11XQN23PROD with RULES2
Expected cost
($)
Manager ............................................................
Administrative ...................................................
Information Technology ....................................
Manager ............................................................
Administrative ...................................................
Information Technology ....................................
Manager ............................................................
Administrative ...................................................
Information Technology ....................................
84.27
41.71
92.91
84.27
41.71
92.91
84.27
41.71
92.91
27
27
27
27
27
27
27
27
27
4,551
4,505
5,017
11,376
2,252
45,152
18,202
5,631
55,186
........................
...........................................................................
........................
........................
a 151,871
201.104(c) ..........................................................
Total Cost ...................................................
Number of
LPDs
2
4
2
5
2
18
8
5
22
201.104(b) .........................................................
a Total
Expected
wage
($)
Profession
may not sum due to rounding.
Table 4 below provides the details of the
estimated ongoing costs of providing
disclosure documents required in § 201.104.
AMS subject matter experts provided
estimates in the second column of the
average amount of time that would be
necessary for each live poultry dealer to meet
each of the elements listed in the ‘‘Regulatory
Requirements’’ column. They also provided
VerDate Sep<11>2014
18:08 Nov 27, 2023
Jkt 262001
the expected number of tournaments per
plant. The number of poultry processing
plants was tallied from the annual reports
that live poultry dealers file with AMS.
Values in the ‘‘Expected Wage’’ column were
found in U.S. Bureau of Labor Statistics
Occupational Employment and Wage
Statistics released May 2022. The wage
estimates are marked up 41.82 percent to
PO 00000
Frm 00092
Fmt 4701
Sfmt 4700
account for benefits. Multiplying across the
row provides the ‘‘Cost’’ for each ‘‘Regulatory
Requirement,’’ and summing the ‘‘Cost’’
column provides the total expected costs for
producing and distributing the disclosure
documents associated with § 201.104 on an
ongoing basis.
E:\FR\FM\28NOR2.SGM
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Federal Register / Vol. 88, No. 227 / Tuesday, November 28, 2023 / Rules and Regulations
83301
TABLE 4—ONGOING EXPECTED COSTS ASSOCIATED WITH § 201.104
Regulatory requirement
Hours
201.104(b) .............................
0.1
201.104(c) .............................
0.1
Total Cost .......................
........................
Number of
tournaments
per plant
Number of
plants
Profession
Avg. wage
($)
Cost
($)
121
1.35
52
a 72.96
$61,901
121
1.35
52
a 72.96
61,901
........................
........................
........................
........................
b 123,803
Evenly distributed among
management, administrative, and information tech.
Evenly distributed among
management, administrative, and information tech.
................................................
Weeks in a
year
a $72.96 is the average of the average wages for poultry processing managers, administrative professionals, and information technology staff at $84.27, $41.71,
and $92.91 respectively.
b Total may not sum due to rounding.
Erin Morris,
Associate Administrator, Agricultural
Marketing Service.
[FR Doc. 2023–24922 Filed 11–27–23; 8:45 am]
lotter on DSK11XQN23PROD with RULES2
BILLING CODE P
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]]>Agencies
[Federal Register Volume 88, Number 227 (Tuesday, November 28, 2023)]
[Rules and Regulations]
[Pages 83210-83301]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-24922]
[[Page 83209]]
Vol. 88
Tuesday,
No. 227
November 28, 2023
Part II
Department of Agriculture
-----------------------------------------------------------------------
Agricultural Marketing Service
-----------------------------------------------------------------------
9 CFR Part 201
Transparency in Poultry Grower Contracting and Tournaments; Final Rule
Federal Register / Vol. 88, No. 227 / Tuesday, November 28, 2023 /
Rules and Regulations
[[Page 83210]]
-----------------------------------------------------------------------
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
9 CFR Part 201
[Doc. No. AMS-FTPP-21-0044]
RIN 0581-AE03
Transparency in Poultry Grower Contracting and Tournaments
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This final rule amends the regulations under the Packers and
Stockyards Act, 1921 (Act), to add disclosures and information that
live poultry dealers engaged in the production of broilers must furnish
to poultry growers with whom dealers make poultry growing arrangements.
The rule also establishes additional disclosure requirements for live
poultry dealers engaged in the production of broilers who use poultry
grower ranking systems to determine settlement payments for broiler
growers. These requirements add targeted transparency to the market for
grower services that will inhibit deceptive practices related to
broiler contracting and performance. The Act protects fair trade,
financial integrity, and competitive markets for livestock, meat, and
poultry.
DATES: This final rule is effective February 12, 2024.
FOR FURTHER INFORMATION CONTACT: S. Brett Offutt, Chief Legal Officer/
Policy Advisor, Packers and Stockyards Division, USDA AMS Fair Trade
Practices Program, 1400 Independence Ave. SW, Washington, DC 20250;
Phone: (202) 690-4355; or email: usda.gov">s.brett.offutt@usda.gov.
SUPPLEMENTARY INFORMATION: At the beginning of the 20th century, a
small number of meat packing companies dominated the industry and
engaged in practices that were deemed anticompetitive and harmful to
livestock producers. In response, Congress enacted the Packers and
Stockyards Act, 1921 (Act), 7 U.S.C. 181 et seq., which seeks to
promote fairness, reasonableness, and transparency in the livestock
marketplace by prohibiting practices that are contrary to these goals.
In the 100 years since the Act went into effect, livestock business
practices have changed significantly, particularly in the poultry
industry, for which provisions were added to the law in 1935 (Act of
August 14, 1935, 49 Stat. 648).
Within the last 40 years, the poultry industry has become highly
integrated, with most live poultry dealers operating as ``integrators''
who frequently own or control all segments of the production process
except growout, where poultry growers raise young poultry to harvest
size under poultry growing arrangements (contracts). Most integrators
employ a relative performance or grower ranking system to determine
grower payment, as explained later in this section. Thus, AMS's
references to ``integrator'' in the discussion of this final rule refer
specifically to those live poultry dealers who are vertically
integrated and generally use a relative performance or grower ranking
system to determine grower payment.
Over the same 40-year time span, the industry has also become more
concentrated.\1\ One measure of industry concentration is the four-firm
concentration ratio, which is the combined market share of the four
largest firms in the industry. A higher four-firm concentration ratio
means a higher level of industry concentration. In 1963, the four firm
concentration ratio for chickens was 14 percent.\2\ By 1980, the four-
firm concentration ratio for integrators processing broilers was 32
percent.\3\ By 2022, the four-firm concentration ratio increased to 57
percent.\4\ Concentration is even higher at the local level in which
growers operate. In the last available survey of local markets,
MacDonald and Key (2011) found that about one quarter of contract
growers reported that there was just one live poultry dealer close
enough to grow for; another quarter reported two; another quarter
reported three; and the rest reported four or more.\5\
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\1\ One measures of industry concentration is the four-firm
concentration ratio, which is the combined market share of the four
largest firms in the industry. A higher four-firm concentration
ratio means a higher level of industry concentration. Rapid
increases in broiler productivity, an important factor driving
consolidation, did not begin until after World War II. Charles R.
Knoeber. ``A Real Game of Chicken: Contracts, Tournaments, and the
Production of Broilers.'' Journal of Law, Economics, & Organization,
Vol. 5, No. 2. (Autumn, 1989).
\2\ Michael Ollinger, James MacDonald, and Milton Madison.
Structural Change in U.S. Chicken and Turkey Slaughter. U.S.
Department of Agriculture, Economic Research Service. Agricultural
Economic Report No. 787, September 2000, p. 7.
\3\ John M. Crespi, Tina L. Saitone, and Richard J. Sexton
Competition in U.S. Farm Product Markets: Do Long-Run Incentives
Trump Short-Run Market Power?, Applied Economic Perspectives and
Policy (2012) volume 34, number 4.
\4\ WATT Poultry USA, March 2023. Companies ranked by weekly
ready to cook pounds.
\5\ James M. MacDonald, Technology, Organization, and Financial
Performance in U.S. Broiler Production, EIB-126, U.S. Department of
Agriculture, Economic Research Service, June 2014: 30, https://www.ers.usda.gov/webdocs/publications/43869/48159_eib126.pdf?v=0.
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There are approximately 16,500 broiler (chicken grown for meat)
growers--those who actually raise the chickens from chicks, often under
contract with live poultry dealers--in the U.S.\6\ Based on comments
from the industry, broiler growers typically have no employees, but
some may employ a handful of workers outside themselves and their
families.\7\ According to annual reports filed with the Department of
Agriculture (USDA), there were 42 live poultry dealers engaged in
broiler production in the U.S. in their fiscal year 2021.\8\ Of those,
20 have fewer than 1,250 employees each, and have average annual sales
of $77 million.\9\ Fewer than 5 percent of approximately 20,000 U.S.
broiler grower contracts are with these 20 dealers.\10\ More than 95
percent of broiler grower contracts are with the 22 larger live poultry
dealer companies that employ more than 1,250 employees each and have
average annual sales of $3.6 billion.\11\ Total U.S. chicken sales for
these dealers was $58.6 billion in 2019.
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\6\ USDA, NASS. 2017 Census of Agriculture: United States
Summary and State Data. Volume1, Part 51. Issued April 2019.
\7\ AMS has no exact data on grower revenues but assumes most
broiler growers are small businesses as defined by the Small
Business Administration (SBA), with annual sales of less than $3.5
million.
\8\ All live poultry dealers are required to annually file PSD
form 3002 ``Annual Report of Live Poultry Dealers,'' OMB control
number 0581-0308. The annual report form is available to public on
the internet at https://www.ams.usda.gov/sites/default/files/media/PSP3002.pdf.
\9\ Live poultry dealers annual report submissions PSD form 3002
``Annual Report of Live Poultry Dealers,'' to AMS. OMB control
number 0581-0308.
\10\ Ibid.
\11\ Ibid.
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Most broiler growers raise poultry under a contractual growing
arrangement commonly known as a tournament system.\12\ Under this
system, integrators use a relative performance or grower ranking system
for settlement purposes, i.e., to determine grower payment among a
group of competing growers. Poultry growers in tournament systems find
themselves competing for payment without access to information in the
possession of the integrators that would allow growers to manage, as
best they can, poultry production under the
[[Page 83211]]
payment systems established by the integrators.
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\12\ Citing data from the 2011 ARMS survey, MacDonald states
``97 percent of broilers were grown under contract, 94 percent of
contracts included payment incentives tied to grower performance,
and 93 percent of those contracts tied the incentives to relative
performance--that is, performance compared to other growers.'' See
MacDonald, James M. Technology, Organization, and Financial
Performance in U.S. Broiler Production, EIB-126, U.S. Department of
Agriculture, Economic Research Service, June 2014: 27.
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Live poultry dealers generally do not provide, and poultry growers
and prospective poultry growers find themselves unable to negotiate
access to, (1) critical information needed to properly assess farm
revenue streams and the operation of poultry growing contracts, and (2)
information related to the distribution of inputs delivered to growers
affecting performance among tournament participants. Whether from a
representation, omission or practice, the inability to secure this
information exposes growers to deception and risks of deception that
could be reduced or eliminated with the provision of the information.
Additionally, live poultry dealers possess or are reasonably expected
to possess this information and are able to provide it to growers with
minimal costs. For more than two decades, USDA, through the
Agricultural Marketing Service (AMS) and its Packers and Stockyards
Division (PSD) which now administers the Act, and formerly through
Grain Inspection Packers and Stockyard Administration (GIPSA), has
received numerous complaints from poultry growers about poultry growing
contracting in general and tournament systems particularly. While the
complaints cover a range of concerns, a central concern is the gap
between expected earnings and the ability to achieve those outcomes
through reasonable efforts by the grower. This central concern is
manifested specifically where live poultry dealers fail to make
transparent the range of financial outcomes possible in these
arrangements, where they exert high degrees of discretion that can and
do adversely affect growers, and where they fail to provide information
necessary for growers to understand and respond to changing factors
(i.e., input differences) in the operation of their contracts.
Among other things, the Act protects growers from deceptive
practices wherein they can be misled through lack of information from
live poultry dealers regarding both potential revenues and the risks
growers assume in the course of making and operating their contracts.
Accordingly, AMS is establishing rules that will increase transparency
in broiler growing contracting, including tournament systems, targeted
at key decision points for growers--at the time of contracting and
housing upgrades, and at the provision of inputs during tournaments.
These are points where live poultry dealers repeatedly and consistently
either omit vital information or make misleading statements, which
prevents growers from understanding the risks they are taking on. Such
misrepresentations may inhibit growers' ability to choose amongst
competing live poultry dealers on a level playing field.
This rulemaking sets forth enforceable transparency requirements
under section 202(a) of the Packers and Stockyards Act that will secure
a more level playing field for growers and foster a marketplace with
fairer contracts and the fairer operation of those contracts under the
contract production model. Deception undermines the integrity of the
market and deprives producers of the true value of their livestock.
In addition to the prohibitions on deceptive practices set forth
this final rule, AMS is also evaluating additional specific
prohibitions and regulatory limitations. To facilitate additional
input, data, and ideas that may inform further efforts to regulate the
poultry tournament system, USDA put forward an Advance Notice of
Proposed Rulemaking seeking stakeholder input. Based on that input, AMS
has included in the Office of Management and Budget's Spring 2023
Regulatory Agenda an upcoming proposed rule entitled ``Poultry Grower
Payment Systems and Capital Improvement Systems.'' \13\ AMS welcomes
engagement with interested stakeholders around ideas to be developed in
that further rulemaking on poultry tournaments.
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\13\ RIN: 0581-AE18, available at https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202304&RIN=0581-AE18.
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I. Overview
On June 8, 2022, AMS published in the Federal Register (87 FR
34980; Docket No. AMS-FTPP-21-0044) a proposal to amend the regulations
implementing the Packers and Stockyards Act. AMS solicited comments on
the proposed rule for an initial period of 60 days and extended the
comment period 15 days on August 8, 2022 (87 FR 48091) through August
23, 2022. AMS received 504 comments, some with multiple signatories,
from individual poultry growers, trade organizations representing
producers, poultry companies, the meat industry, State- and national-
level agriculture groups, other associations, and non-profit
organizations. After consideration of all comments, AMS adopts the
proposed rule, with modification. Section V details the regulatory
changes made by this final rule. Modifications to the proposed
rulemaking are discussed in Section VI. Public comments are discussed
by topic in Section VII.
This rulemaking adds two new sections to PSD regulations under the
Act, introducing new disclosure requirements that live poultry dealers
engaged in the production of broilers must furnish to broiler growers
with whom they establish broiler growing arrangements. In doing so, the
final rule builds on existing disclosure concepts under the Act in 7
U.S.C. 197(a) through (c) and in the regulations that effectuate the
Act at 9 CFR 201.55; 9 CFR 201.56(d); 9 CFR 201.99; and particularly 9
CFR 201.100, with respect to the poultry industry, which provide for a
range of disclosures such as settlement sheets and establish other
regulatory requirements. The current disclosure framework has improved
transparency in poultry contracting and has helped close the asymmetric
information gap between the parties, thus reducing the market failure
caused by asymmetric information.\14\ However, the modern poultry
industry, in particular the broiler chicken segment, now requires
increasingly large capital investments; and under the tournament
system, growers are subject to intense pressures to perform, as well as
financial and operational risks that may exacerbate the dangers of
deception.
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\14\ The concept of asymmetric information and associated market
failures is discussed in a seminal article: Akerlof, G.A. ``The
Market for `Lemons': Quality Uncertainty and the Market Mechanism.''
The Quarterly Journal of Economics Vol. 84, No. 3 (August 1970).
---------------------------------------------------------------------------
Section 202(a) (7 U.S.C. 192(a)) of the Act prohibits live poultry
dealers from engaging in deceptive practices. This rulemaking
establishes prohibitions against specific deceptive practices, such as
withholding important information on the economic, financial, and
operational risks growers take when entering into and operating their
growing agreements. Growers can make more informed business decisions
when they know the economic, financial, and operational risks
associated with poultry growing. A lack of transparency for growers in
poultry growing arrangements also creates an environment where growers
are more vulnerable to other marketplace abuses.
Live poultry dealers have possession of key information that is
materially useful for growers as they make decisions. This information
asymmetry can be exploited by dealers to impede growers' ability to
understand, evaluate, and compare contracts offered by dealers, bargain
efficiently with competing dealers where and to the extent possible
given the highly concentrated nature of the poultry industry, and
manage their farm effectively for the risks they confront.
[[Page 83212]]
This type of deceptive conduct denies growers the benefits of market
and the full value of their services, and results in misallocation of
grower resources, heightened live poultry dealer bargaining power, and
significant financial risk to growers.
This rule adds a new Sec. 201.102 to the regulations, adding to
the list of required disclosures a live poultry dealer must make to
broiler growers and prospective broiler growers in connection with
poultry growing arrangements. By obtaining these disclosures prior to
making the underlying capital investment, growers are better positioned
to understand and evaluate growing arrangements. The rule further
requires live poultry dealers to specify additional terms in broiler
growing contracts about variables that are highly correlated with
grower annual revenue. This information is not routinely shared with
growers. AMS intends for these new requirements to improve transparency
and inhibit deceptive practices in poultry growing arrangements.
Additionally, this rule adds a new Sec. 201.104 to the regulations
to require live poultry dealers to provide information related to the
integrator-controlled input distribution to poultry growers paid under
grower ranking systems (tournaments), where growers are paid based on
their performance relative to a grouping of other growers. These
disclosures allow growers to evaluate the distribution of inputs
affecting performance such as poultry breed, gender ratio, and flock
health--of their own flock and as compared to flocks of all tournament
participants. These new data points will help growers better
understand, evaluate, and compare the relationships between inputs,
flock performance, and payment under their poultry growing arrangement.
The requirements in this rule are intended to provide greater
transparency and inhibit deceptive practices in the operation of
poultry grower ranking systems.
Finally, this rule makes conforming changes to the regulations by
adding to the list of definitions in Sec. 201.2 to define terms used
in new Sec. 201.102 and new Sec. 201.104.
Specifically, this final rule requires the following of live
poultry dealers engaged in the production of broilers:
1. A Live Poultry Dealer Disclosure Document (Disclosure Document),
to be provided to prospective or current broiler growers that contains
critical information about the broiler growing arrangement when seeking
to establish, renew, revise, or replace a broiler growing arrangement
with the grower, including when a broiler growing arrangement would or
might reasonably require a broiler grower to make an original or
additional capital investment to comply with the live poultry dealer's
housing specifications. A governance framework and CEO-certification
enhances the accuracy and enforceability of the disclosures.
a. The Disclosure Document includes summaries of the dealer's
litigation history with broiler growers and its bankruptcy filings over
the past 5 years, the dealer's policies and procedures regarding sale
of the grower's farm or assignment of the growing arrangement to
another party, and the dealer's average annual turnover rate for
broiler growers over the past five years.
b. The Disclosure Document describes the live poultry dealer's
policies and procedures regarding certain instances of heightened
discretion or unusual circumstances which would otherwise be opaque--
specifically, increased layout times; sick or diseased flocks; natural
disasters, weather-related events, or other events adversely affecting
the physical infrastructure of the local complex or the grower
facility; other events potentially resulting in massive depopulation of
flocks affecting grower payments; feed outages including outage times;
grower complaints relating to feed quality, formulation, or
suitability; as well as any appeal rights growers may have relating to
any of those items.
c. The Disclosure Document provides a more fulsome set of financial
disclosures, including average annual gross payments to growers over
the past 5 years broken out by quintiles to reflect the full range of
outcomes, and a summary of information pertaining to grower variable
costs inherent to broiler production.
2. Mandated disclosures in the contract that also set out the
minimum number of placements to be delivered to the broiler grower's
farm for each year of the broiler growing arrangement contract, as well
as the minimum stocking density of each placement.
3. When a poultry grower ranking system is used, disclosures of
critical information about the flock (e.g., stocking density, breed
names and ratios, breeder facility identifiers, and breeder flock age)
placed with the grower must be disclosed within 24 hours of delivery.
4. When a poultry grower ranking system is used, dealers must
provide settlement disclosures regarding critical information about
each grower's ranking within the system, in particular the nature of
the inputs received (e.g., stocking density, breed names and ratios,
breeder facility identifiers, and breeder flock age) and housing
specifications for each growout period, without the identities of the
growers to each other.
II. Background
A. Demand for This Rulemaking
For more than two decades, poultry growers have complained to USDA
of abuses that arise in the contracting process and the operation of
those contracts under poultry grower ranking systems, also known as the
tournament system, a payment method which dominates the broiler chicken
industry. To address these longstanding concerns regarding the fairness
and competitive functioning of the market, Executive Order 14036
``Promoting Competition in the American Economy'' (86 FR 36987; July 9,
2021), directs the Secretary of Agriculture (Secretary) to consider
rulemaking to address, among other things, unfair treatment of farmers
arising from certain practices related to poultry grower ranking
systems. AMS has considered that direction in undertaking this
rulemaking, as well as in undertaking an Advance Notice of Proposed
Rulemaking around ideas to be developed in further rulemaking on
poultry tournaments.
USDA's efforts to address grower complaints of malfeasance and
abuses in the broiler industry now span more than a decade.\15\ In
2010, USDA held a series of workshops in conjunction with the
Department of Justice (DOJ) to hear from producers about concentration
and trade practice issues in agriculture. At the workshop in Normal,
Alabama, poultry growers complained that their success or failure is
dependent on factors controlled by their integrators.\16\ Further,
growers were troubled by the lack of alternative integrators in many
regional relevant markets, which further heightens the bargaining
position of integrators.\17\ Grower public comments at the workshop
were consistent with numerous comments submitted to USDA in connection
with previous rulemaking efforts, as well as on the June 8, 2022,
proposed rulemaking.
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\15\ See, generally, Leonard, Christopher, The Meat Racket
(2014).
\16\ Transcript, United States Department of Justice, United
States Department of Agriculture, Public Workshops Exploring
Competition in Agriculture: Poultry Workshop May 21, 2010, Normal,
Alabama (https://youtu.be/j11GXzvA7u0?t=1822).
\17\ See Domina, David A. and Robert Taylor. ``The Debilitating
Effects of Concentration Markets Affecting Agriculture,'' Drake
Journal of Agricultural Law 15 (May 2010): 61-108. See also Leonard,
Christopher, The Meat Racket (2014).
---------------------------------------------------------------------------
Growers expressed concerns about contract dependency, uncertainty
of
[[Page 83213]]
pay, and informational asymmetries related to farm revenues and debt.
Poultry growers have indicated they lack information about certain
crucial production factors controlled by live poultry dealers, such as
the anticipated frequency and density of flock placements and bird
target weight under poultry growing arrangements, which heavily
influence grower payments on an individual flock basis and over the
long term.\18\
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\18\ United States Department of Justice, United States
Department of Agriculture, Public Workshops Exploring Competition in
Agriculture: Poultry Workshop May 21, 2010; Normal, Alabama (https://youtu.be/8CvEGyMQ9v8?t=2156).
---------------------------------------------------------------------------
Growers cited the level of control and discretion reserved to
integrators under their contracts, remarking how discretionary
decisions controlled by integrators related to inputs quality, flock
placements, housing specifications, tournament grouping, and other
production factors can significantly affect grower revenue and
profitability. Many growers were worried that contract terms did not
cover the time required to repay the debt on their farms, noting that--
sometimes unforeseen--additional capital investments, such as those
necessitated by integrators' housing specifications, can plunge growers
into further debt without assurances of adequate or stable returns.\19\
Growers indicated they do not have adequate information with which to
assess original and additional capital investments because pay rates
alone are insufficient for long-term revenue estimates without
assumptions related to integrator discretionary production
decisions.\20\ Growers have also raised concerns regarding the use of
overly rosy ``pro forma'' financial estimates, including income
projections, during the contracting process, which in the growers'
experience are not realized.\21\
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\19\ United States Department of Justice, United States
Department of Agriculture, Public Workshops Exploring Competition in
Agriculture: Poultry Workshops May 21, 2010; Normal, Alabama
(https://youtu.be/j11GXzvA7u0?t=2422) (https://youtu.be/j11GXzvA7u0?t=3032).
\20\ United States Department of Justice, United States
Department of Agriculture, Public Workshops Exploring Competition in
Agriculture: Poultry Workshops May 21, 2010; Normal, Alabama
(https://youtu.be/j11GXzvA7u0?t=2453).
\21\ United States Department of Justice, United States
Department of Agriculture, Public Workshops Exploring Competition in
Agriculture: Poultry Workshops May 21, 2010; Normal, Alabama
(https://youtu.be/8CvEGyMQ9v8?t=4226; https://youtu.be/j11GXzvA7u0?t=3084; https://youtu.be/j11GXzvA7u0?t=3091).
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Finally, poultry growers complained to USDA about being prohibited
by dealers from asserting their rights under the current regulations to
discuss poultry growing contracts with USDA government representatives
(including PSD), family members, lenders, and other business
associates. Some growers allege they have been threatened or retaliated
against by integrators for asserting those rights, including for
responding to Federal Government requests for information--
specifically, the 2010 DOJ Workshop.\22\ USDA also received comments to
the proposed rule that alleged some growers were harassed, intimidated,
and retaliated against for refusing to make expensive upgrades to their
growing operations.
---------------------------------------------------------------------------
\22\ United States Department of Justice, United States
Department of Agriculture, Public Workshops Exploring Competition in
Agriculture: Poultry Workshops May 2010; Normal, Alabama (https://youtu.be/8QJ_K06lp5M?t=1051).
---------------------------------------------------------------------------
Similar to the comments received during the 2010 workshop, comments
received in response to this proposed rule specifically reaffirmed that
one prevalent deceptive practice involves live poultry dealers'
omission of key information in the contracts with growers. This
omission of information caused growers to believe that they were
signing up for a contract that in practice they did not end up
receiving or provide providing services under. Numerous comments to the
proposed rule described how dealers provide growers with inadequate
information on settlement sheets, particularly related to payment, and
how, without this information, growers could not make sound business
decisions.
Commenters have noted live poultry dealers do not provide critical
information about--
typical upfront associated costs;
revenues and the full range of possible outcomes thereto;
sale-of-farm policies;
dealer bankruptcy and litigation history with poultry
growers;
grower turnover rate;
how dealers handle--and growers are affected by--
depopulation, sick chicks, natural disaster, weather-related events,
and impairments to the physical infrastructure of the local complex or
the grower's facility; feed outages; feed quality, formulation, and
suitability; and appeals processes related thereto;
minimum flock numbers and stocking densities;
information about inputs and any differences between them,
such as about the breeds, chick weights, breeder facilities, breeder
flock age, and bird sexing--both at delivery and at settlement; and
at settlement, information about housing type. Growers
expressed a strong need for such information, as they could use it when
deciding how to manage their farms, grow chicks, and take on--or not
take on--additional risks in growing broiler chicken.
B. Market Structure and Production Contracts
Integrated live poultry dealer firms typically own and manage local
``complexes'' of integrated operations that include hatcheries, feed
mills, transportation systems, and processing facilities, and they
contract with individual growers within a local region to raise birds
for meat and hatchery eggs.\23\ As explained earlier, these live
poultry dealers that own and manage vertically integrated operations
are referred to in the industry as ``integrators.''
---------------------------------------------------------------------------
\23\ MacDonald, James M. Technology, Organization, and Financial
Performance in U.S. Broiler Production, EIB-126, U.S. Department of
Agriculture, Economic Research Service, June 2014.
---------------------------------------------------------------------------
Through vertical integration, integrators control the complete
supply chain from the genetics of breeder stock to slaughter. While
integrators own most of the inputs and manage the operation of the
supply chain, they outsource the function and major costs of raising
poultry to broiler growers--and control much of that process through
production contracts. Contracting with individual growers to grow out
broilers, rather than procuring broilers from company-owned farms, is
advantageous to integrators for two reasons: (1) the rapid pace of
technological change in broiler production since the 1950s requires
ongoing significant capital investments, and (2) the use of tournaments
to compensate growers insulates growers from common production risks
(such as disease and extreme weather) and lowers transaction costs.\24\
---------------------------------------------------------------------------
\24\ Charles R. Knoeber. ``A Real Game of Chicken: Contracts,
Tournaments, and the Production of Broilers.'' Journal of Law,
Economics, & Organization, Vol. 5, No. 2. (Autumn, 1989).
---------------------------------------------------------------------------
Through the poultry growing arrangement, broiler growers provide
the growout facilities and the equipment, labor, and management
associated with those facilities. Broiler growers are typically
responsible for utilities, fuel, maintenance, and repairs. Growers are
responsible for ensuring the equipment functions properly and the
environment inside the poultry house is satisfactory at all times
throughout placement, including waste removal and disposal of deceased
birds. These activities are subject to significant discretion and
control by the integrator through contract terms and integrator-
supplied supervisors or service technicians who oversee growers.
Integrators exert significant power over contract poultry grower
operations
[[Page 83214]]
through individual production contracts and payment systems.
Grower revenue is a function of payment per flock multiplied by the
number of flocks over a time period. While the specific formula for
flock payment varies among integrators, it typically involves the
evaluation of three variables: payrate, farm weight, and feed consumed.
Where used to allocate payment, the tournament system is supposed to
essentially rank growers on their efficiency in production, with
payrates adjusted up or down based upon the growers' deviation from
average performance of all growers over the growout period.
Growers' annual revenues are heavily dependent upon the annual
number of flock placements and stocking density \25\ of each placement,
which are typically discretionary functions controlled by the
integrator. Empty poultry houses do not produce revenue. Additionally,
under tournament contract payments, flock performance--and therefore
per flock payments--can be influenced by integrator discretionary
decisions related to variation in input distributions like poultry
breeds,\26\ bird sex,\27\ breeder stock age,\28\ stocking density,\29\
consistency of feed availability,\30\ and the type and administration
of veterinary medicines.\31\
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\25\ Often expressed as a ratio of birds per square foot, or
pounds (target weight of poultry at harvest) per square foot,
stocking density reflects the number of birds placed on a farm or in
a poultry house.
\26\ Muir, W.M. and SE Aggrey. Poultry Genetics, Breeding, and
BioTechnology (2003).
\27\ See Burke, William, and Peter J. Sharp. ``Sex Differences
in Body Weight of Chicken Embryos.'' Poultry Science 68.6 (1989):
805-810; and Beg, Mah, et al. Effects of Separate Sex Growing on
Performance and Metabolic Disorders of Broilers. Diss. Faculty of
Animal Science and Veterinary Medicine, Sher-e-Bangla Agricultural
University, Dhaka, Bangladesh, 2016.
\28\ See Washburn, K.W., and R.A. Guill. ``Relationship of
Embryo Weight as a Percent of Egg Weight to Efficiency of Feed
Utilization in the Hatched Chick.'' Poultry Science 53.2 (1974):
766-769; Weatherup, S.T.C., and W.H. Foster. ``A Description of the
Curve Relating Egg Weight and Age of Hen.'' British Poultry Science
21.6 (1980): 511-519; Wilson, H.R. ``Interrelationships of Egg Size,
Chick Size, Posthatching Growth and Hatchability.'' World's Poultry
Science Journal 47.1 (1991): 5-20; Goodwin, K. ``Effect of Hatching
Egg Size and Chick Size Upon Subsequent Growth Rate in Chickens.''
Poultry Science 40 (1961): 1408-1409; Morris, R.H., D.F. Hessels,
and R.J. Bishop. ``The Relationship Between Hatching Egg Weight and
Subsequent Performance of Broiler Chickens.'' British Poultry
Science 9.4 (1968): 305-315; Peebles, E. David, et al. ``Effects of
Breeder Age and Dietary Fat on Subsequent Broiler Performance. 1.
Growth, Mortality, and Feed Conversion.'' Poultry Science 78.4
(1999): 505-511. AMS notes additionally that research in this and
related areas has limitations. It is older and results are mixed.
AMS is concerned that publically available research has stagnated,
despite the introduction of new breed strains in the intervening
years. Because integrators now own the genetics companies, AMS has
additional concerns that research has, in effect, been privatized,
creating informational asymmeteries. Based on regulatory experience
and on public comments, growers believe these factors affect
performance, highlight its value to growers from disclosure.
\29\ Dozier III, W.A., et al. ``Stocking Density Effects on
Growth Performance and Processing Yields of Heavy Broilers,''
Poultry Science 84 (2005): 1332-1338; Puron, Diego et al. ``Broiler
performance at different stocking densities.'' Journal of Applied
Poultry Research 4.1:55-60 (1995).
\30\ Dozier III, W.A., et al. ``Effects of Early Skip-A-Day Feed
Removal on Broiler Live Performance and Carcass Yield.'' Journal of
Applied Poultry Research 11.3 (2002): 297-303.
\31\ Treatments may be necessary to mitigate disease within a
single poultry house or an entire flock, or to boost the performance
of suboptimal progeny from impaired breeder flocks, as described
above. These treatments may affect the flock's growth rate or
mortality. See Wells, R.G., and C.G. Belyawin. ``Egg quality-current
problems and recent advances.'' Poultry science symposium series.
No. 636.513 W4. 1987. (citing Spackman, D. ``The Effects of Disease
on Egg Quality.'')
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Moreover, when integrators encounter problems in performing their
contract obligation to provide inputs, they often seek to resolve them
via discretionary functions reserved to the integrator under the
contract. From growers' points of view, these are operational risks
that can result in actual or perceived disparate treatment among
growers. When natural disasters or weather events affect the
integrators' ability to provide chicks and feed or other key physical
infrastructure of the local complex or grower facility, growers are
unlikely to be aware of the integrators' policies and procedures that
dictate allocation of inputs or determine availability or supplemental
pay. Similarly, if a disease outbreak or massive depopulation event
affects growers, growers have a right to be informed of the policies
and procedures that will be implemented to control the outbreak, assign
payment, and reallocate inputs. As feed is a primary input for growout,
growers must be made aware of policies and procedures to report issues
of feed suitability and quality to company personnel. Integrators do
not necessarily share these policies and procedures with growers and
often use informal rules with respect to the above-mentioned issues.
Without this critical information, growers' ability to understand and
evaluate, as well as compare contracts among integrators, is impeded,
and the potential for deception in contracting and deceptive practices
in the operation of those contracts increases.
Due to market consolidation combined with certain natural factors
(such as the fragility of birds, limiting their transport), many
integrators operate as monopsonists \32\ or oligopsonists \33\ in their
relevant regional market. Some research \34\ shows a correlation in
local markets between the number of available integrators and grower
payments, with payments shrinking as the number of integrators
decreases. In local markets, the lack of alternative integrators,
coupled with integrator control and discretion over production
contracts, leaves growers with little bargaining power to obtain
reasonable contract assurances and transparency.
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\32\ Merriam-Webster online dictionary: A monopsonist is one who
is a single buyer for a product or service of many sellers. https://www.merriam-webster.com/dictionary/monopsonist; accessed 3/8/2022.
\33\ Merriam-Webster online dictionary: Oligopsony is a market
situation in which each of a few buyers exerts a disproportionate
influence on the market. An oligopsonist is a member of an
oligopsonistic industry or market. https://www.merriam-webster.com/dictionary/oligopsonist; accessed 3/8/2022.
\34\ MacDonald, James M., and Nigel Key. ``Market Power in
Poultry Production Contracting? Evidence from a Farm Survey''.
Journal of Agricultural and Applied Economics 44 (November 2012):
477-490. See also, MacDonald, James M. Technology, Organization, and
Financial Performance in U.S. Broiler Production, EIB-126, U.S.
Department of Agriculture, Economic Research Service, (June 2014):
29-30.
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Under the existing poultry industry market structure, growers are
dependent on a live poultry dealer and receive only nominal assurances
related to production levels and the variables composing farm revenue,
while integrators set those production levels and have significantly
more data related to grower payment variables, which generate costs
integrators seek to minimize. The failure to provide critical
information is deceptive given the conditions of asymmetrical
information that compound as growers accumulate debt and operate in a
tournament they do not control, both of which are discussed in greater
detail below.
C. Grower Debt and Hold-Up Risk
Poultry growout operations require significant financial
investments on the part of poultry growers, who typically provide the
facilities (poultry housing and necessary equipment), utilities
(electricity, gas, and water), manure management, compliance with
environmental regulations, labor, and day-to-day management of growing
poultry. One of the costliest investments is in poultry housing and
equipment, the requirements of which are dictated to the poultry grower
by the live poultry dealer through the contract. Throughout the term of
the contract, live poultry dealers may encourage, incentivize, or even
require a poultry grower, at the grower's expense, to upgrade existing
[[Page 83215]]
housing or equipment in order to renew or revise an existing contract.
Revenue instability and continuing debt accumulation may explain the
low returns to equity \35\ in this space.
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\35\ MacDonald (June 2014) Op. Cit., pp. 38-40. Data from the
Agricultural Resource Management Survey--Version 4, Financial and
Crop Production Practices, 2011, and U.S. Census Bureau, 2011
Quarterly.
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1. Construction Costs
A 2011 study estimated a cost of $924,000 for site preparation,
construction, and necessary equipment for four 25,000-square-foot
poultry houses (or $231,000 per house) in rural Georgia at that time,
independent of the cost for the land.\36\ Costs for establishing
poultry houses have increased substantially since 2011, due to the
advancement of new technologies in poultry housing and the increased
cost of materials. AMS estimates current construction costs at nearly
$500,000 per poultry house.\37\
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\36\ Cunningham, Dan L., and Brian D. Fairchild. ``Broiler
Production Systems in Georgia Costs and Returns Analysis 2011-
2012.'' UGA Cooperative Extension Bulletin 1240 (November 2011),
University of Georgia Cooperative Extension.
\37\ See, for example, Cunningham and Fairchild (November 2011)
Op. Cit.; Simpson, Eugene, Joseph Hess and Paul Brown, Economic
Impact of a New Broiler House in Alabama, Alabama A&M & Auburn
Universities Extension, March 1, 2019 (estimating a $479,160
construction cost for a 39,600 square foot broiler house).
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Poultry growers can incur considerable debt to make the investments
necessary for poultry production. Most new broiler housing is debt-
financed. According to MacDonald, U.S. contract poultry growers' total
debt amounted to $5.2 billion, or 22 percent of the total value of
their assets, in 2011.\38\ The research cited here found that debt
loads--and exposure to liquidity risks, should flock placements and
revenues fall--are closely related to the age of the operation, with
newer farmers carrying greater debt relative to the value of farm
assets. Farmers with fewer than six years of experience in broiler
production carried debt equal to 51 percent of assets, on average, and
one quarter of those farmers carried debt equal to at least 77 percent
of assets.
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\38\ MacDonald (June 2014) Op. Cit.
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The weight of poultry grower debt load can be exacerbated by three
additional factors: (1) the length, in terms of time, of a poultry
growing arrangement is rarely long enough to cover the grower's debt
repayment period, and can be as short as one flock; (2) growers may be
encouraged or required by live poultry dealers to invest in facility
upgrades, which may lead to additional debt; and (3) poultry housing is
a specific-use asset with little salvage or repurpose value.\39\ In
other words, the grower is unlikely to be able to use or sell the
facilities for a different purpose should the poultry growing contract
be terminated. These ``term,'' ``upgrade,'' and ``specific use''
problems are rooted in asymmetrical information problems at the
contracting stage, where live poultry dealers have knowledge and
control of production and technical/equipment needs over the useful
life of the poultry farm and growers do not. Combined, these factors
create classic hold-up risk, where live poultry dealers make contract
renewal dependent on further grower investments not disclosed at the
time of the original agreements.\40\
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\39\ Poultry growing facilities are often characterized by
certain expensive attributes, such as temperature and other habitat
control systems. A fully equipped poultry growing facility
repurposed, for example, as a hay barn or other storage is unlikely
to generate the revenue necessary to meet a grower's $400,000
mortgage obligation. Nor is repurposing it for an alternative
livestock usage, such as hogs or dairy cows, possible, at least
without retrofitting that would essentially demolish the growout
facility. The grower's return on investment is tied to using the
facility as intended.
\40\ Vukina, Tom, and Porametr Leegomonchai. ``Oligopsony Power,
Asset Specificity, and Hold-Up: Evidence from the Broiler
Industry.'' American Journal of Agricultural Economics 88 (2006).
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Grower debt problems are exacerbated by the limited number of live
poultry dealers in most localities and by complex dealer-specific
requirements that inhibit grower movement between dealers, particularly
for growers with older poultry houses. For example, a grower who
currently produces smaller birds for one live poultry dealer may desire
to move to a different dealer that wants larger birds. The grower could
be required to upgrade their poultry growing facility to include more
cooling capacity in order to accommodate larger birds. However, such
upgrades may not be economically feasible for the grower, so the grower
stays with their current live poultry dealer. Growers also may
encounter problems trying to sell their farm to exit the industry.
Banks commonly require that a prospective buyer secures a contract with
a live poultry dealer to be approved for financing the farm, making the
availability of the poultry growing contract a critical element to the
farm's sale. Growers have often expressed frustration with live poultry
dealer refusals to offer contracts to interested buyers, thwarting farm
sales. Growers need to understand how live poultry dealer policies and
procedures affect their ability to sell their poultry operation.
Grower debt and dependance on live poultry dealers contribute to
additional risks that are enhanced by other informational disparities.
For example, dealers are not required to provide growers information
related to the financial condition of the dealer or complex. Complexes
that are underperforming financially may be subject to closure or
reduced production levels, resulting in negative effects on grower
revenue and potential contract termination. Growers also lack insight
into other growers' satisfaction with a dealer and how often growers
and dealers are involved in disputes, legal or otherwise. Dissension
between a grower and their dealer can often result in contract
termination and/or litigation between the parties. Dealers have readily
available access to information concerning their financial health,
grower churn,\41\ and frequency of litigation with growers. Disclosure
of these items is critically useful information for growers to
understand and evaluate risk and compare contracts among competing live
poultry dealers. A live poultry dealer's failure to disclose this
information to growers is deceptive.
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\41\ Grower churn refers to changes in grower make up at a given
complex. This metric reflects growers who have been terminated or
left on their own accord.
---------------------------------------------------------------------------
2. Returns to Equity
The substantial debt accumulation, hold-up risk, and lack of
competition for grower services, in an environment of opacity and
asymmetrical information, is reflected in low grower returns to equity.
In 2011, data drawn from a nationally representative sample of growers
showed that the median payment received by contract growers was 5.55
cents per pound of farm weight. However, 10 percent of growers earned
at least 7.02 cents per pound, while 10 percent earned less than 4.32
cents per pound.\42\ The sample data ranged across all growers and all
contract types, but research has also shown that payments can range
widely within specific contract types and within individual grower
pools, creating revenue uncertainty for growers.\43\
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\42\ MacDonald (June 2014) Op. Cit.
\43\ Knoeber, Charles R. and Walter N. Thurman. ``Testing the
Theory of Tournaments: An Empirical Analysis of Broiler
Production.'' Journal of Labor Economics 12 (April 1994). Levy,
Armando and Tomislav Vukina. ``The League Composition Effect in
Tournaments with Heterogeneous Players: An Empirical Analysis of
Broiler Contracts.'' Journal of Labor Economics 22 (2004).
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Perhaps even more concerning than the range of grower contract
payments are the low returns on equity for poultry operations.
According to USDA's Economic Research Service (ERS),\44\ a
[[Page 83216]]
special survey conducted in 2011 showed mean returns on equity were
negative for operations with one to two poultry houses, and increased
with the size of the operation to positive 2.7 percent among operations
with six or more houses. These figures were below mean rates of return
on equity for large and midsize U.S. farms.\45\ In AMS's experience,
growers are experiencing the ongoing harm of contracting practices that
omit critical information, such as certain dealer policies and
procedures, input differences, information needed to evaluate returns
across quintiles, and more.
---------------------------------------------------------------------------
\44\ MacDonald (June 2014) Op. Cit., pp. 38-40. Data from the
Agricultural Resource Management Survey--Version 4, Financial and
Crop Production Practices, 2011, and U.S. Census Bureau, 2011
Quarterly Financial Report (QFR): Manufacturing, Mining, Trade, and
Selected Service Industries. https://www2.census.gov/econ/qfr/pubs/qfr11q4.pdf; accessed 1/19/2022.
\45\ MacDonald (June 2014) Op. Cit. p. 40.
---------------------------------------------------------------------------
D. Tournaments
The majority of growers producing poultry under production
contracts are paid under a poultry grower ranking or ``tournament'' pay
system.\46\ Under poultry grower ranking systems, the contract between
the live poultry dealer and the poultry grower provides for payment to
the grower based on a grouping, ranking, or comparison of poultry
growers delivering poultry to the dealer during a specified period
based on metrics \47\ created by the integrator. Per flock performance
payments under tournament contracts generally depend on three
variables: pay rate, farm weight, and feed consumed. In a simplified
example, the live poultry dealer places flocks with ten growers under
contract to deliver the same size of finished poultry to the dealer's
processing plant at the end of a specified growout period. Upon
harvest, each grower's performance (e.g., farm weight and feed
conversion) is determined by an integrator-determined formula. The
integrator then compares individual grower results against average
results for all growers in the group, and ranks individual growers
according to their relative performance within the group of ten
growers. Grower contract payrate is adjusted up or down in relation to
the grower's deviation from the average within the tournament grouping
for that specific growout period.
---------------------------------------------------------------------------
\46\ MacDonald (June 2014) Op. Cit. See footnote 20 on page 27
citing ARMS data from 2011 that reported 97% of broilers are grown
under contract, with 93% of contracts tied to relative performance.
\47\ Metrics are typically associated with ``costs''. Formulas
to calculate the metric vary among integrators. A high ``cost''
grower would be a poor performance, as a low ``cost'' grower would
have performed well.
---------------------------------------------------------------------------
Grower experience and skill, the technical specifications and
relative sophistication of the housing, and other factors, such as the
makeup of tournament groupings or inconsistent grower effort, may all
affect performance. However, integrator decisions about inputs provided
to tournament growers can also impact growers' relative performance.
Under the tournament system, integrators control the source of
inputs and the distribution of those inputs to growers. Key inputs
provided by the integrator are not always uniform with respect to
quality characteristics across complexes or across time, and variation
in these quality characteristics may impact grower performance. Based
on AMS's experience, live poultry dealers will select strategies around
broad types of inputs to grow at certain complexes, in general, to
target customer preferences or to meet product requirements relating to
growout or slaughter efficiency. For example, certain genetically
tailored birds will be used to grow out more meat in certain areas or
with uniformity in larger or smaller sizes to help live poultry dealers
tailor their production. Similarly, feed inputs may be tailored based
on the availability of grains or to achieve other animal health goals.
However, within these broader strategies, there are a wide range of
differences to the inputs that growers state are material to the
growout process--such as the sex and age of the chicks, age and health
of breeder flocks, the feed mix overall based on different grain
availability, and more. Timely performance by live poultry dealers and
dispute resolution are also relevant to the growout process. For
example, improper delivery of feed mix designed for different stages of
growout or delayed delivery or pickup of inputs are all potentially
relevant.
In comments, dealers have denied or downplayed the significance of
input variability and its effect on bird performance. Grower commenters
are concerned about input differences and prefer some level of parity
in input allocations, or at least mitigation of any disparities.
Growers, however, unlike integrators, do not have direct access to the
specific input differences, which makes it difficult if not impossible
for them to evaluate whether their compensation is related to
management and skill or correlated with ``favorable'' inputs. The lack
of information further enables an opaque market environment where
integrators may provide different inputs with little check on those
actions.
The omission of this known information by integrators--impedes
growers' ability to understand, evaluate, and adjust their performance,
management, and skill as growers. In the absence of this information,
growers are deprived of known information necessary to understand their
performance and payment in operation under contract.
E. Addressing the Omission of Information
As described above, live poultry dealers have engaged in a series
of omissions in the contracting process and operation of those
contracts that deprives growers of the ability to make contracting and
investment decisions and manage the operation and risks of their farms.
This rule addresses that deceptive practice with regulatory
transparency mandates enforceable under the Act. Eliminating deception
will increase the intensity of competition amongst live poultry dealers
to the benefit of growers. Growers need this information to understand
the market for grower services, to understand and evaluate their
performance under the terms of the contract, and to make decisions
about their investments and operations of their farms that may improve
performance or mitigate risks under those contracts. The additional
information will intensify competition in the market for grower
services. As a result of more complete and transparent information for
all market participants, live poultry dealers will have to compete more
vigorously for grower services, allowing growers to benefit from the
competition in the market.
The lack of this information further contributes to an opaque
market environment that exposes growers to greater risks from actions
by live poultry dealers. The deprivation of this information is a
deceptive practice under the Act. The final rule addresses that ongoing
deception with specific transparency requirements in the contracting
process and during the ongoing operation of those contracts, consistent
with the FTC's approach to similar problems in franchising. These
transparency requirements, together with a governance framework
designed to enhance the reliability of the disclosures, are enforceable
under the Act by AMS and by growers under section 202(a)'s prohibition
on live poultry dealers engaging in deceptive practices.
III. Authority
Congress enacted the Act to promote fairness, reasonableness, and
transparency in the marketplace by prohibiting practices that are
contrary to
[[Page 83217]]
these goals. In 1921, the Act's stated purpose was to ``regulate
interstate and foreign commerce in livestock, live-stock products,
dairy products, poultry, poultry products, and eggs.'' At that time,
poultry was included in the definition of a ``packer.'' Amendments to
the law in 1935 added a new type of entity under its jurisdiction, the
``live poultry dealer.'' The poultry industry of that time involved
marketing of live animals in large population centers, accompanied by
various unfair, deceptive, and fraudulent practices. The 1935
amendments required that live poultry handlers be licensed, and
subjected them to criminal penalties for violations. Congress also made
sec. 202 (7 U.S.C. 192) applicable to live poultry dealers.\48\ The
Poultry Producers Financial Protection Act of 1987 (Pub. L. 100-173),
modified and replaced parts of the 1935 amendments. The new provisions
further protected growers of live poultry by adding payment provisions
(sec. 410), trust provisions (sec. 207), and adding and modifying the
liability provisions (secs. 411, 412, and 308), including creating a
private cause of action for violations of sec. 202 of the Act.
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\48\ An Act to Amend the Packers and Stockyards Act, S. 12, 74th
Cong. (1935).
---------------------------------------------------------------------------
AMS authority to regulate deception and deceptive practices is
well-established.\49\ Sec. 202(a) of the Act (7 U.S.C. 192(a))
prohibits live poultry dealers, with respect to live poultry, from
engaging in or using deceptive practices or devices. Further, sec.
410(a) of the Act (7 U.S.C. 228b-1(a)) requires live poultry dealers
obtaining live poultry under a poultry growing arrangement to make full
payment for such poultry to the poultry grower from whom the dealer
obtains the poultry on a timely basis. Sec. 407(a) of the Act (7 U.S.C.
228(a)) authorizes the Secretary to make rules and regulations as
necessary to carry out the provisions of the Act. Such regulations are
found, in part, at 9 CFR part 201.
---------------------------------------------------------------------------
\49\ See, e.g. . . . Philson v. Cold Creek Farms, Inc., 947 F.
Supp. 197, 201 (E.D.N.C. 1996) (``[T]he violation of a regulation
such as 9 CFR 201.82 is indisputably prohibited by the PSA . . .
.''); see also Stafford v. Wallace, 258 U.S. 495, 515, 42 S. Ct.
397, 401, 66 L. Ed. 735 (1922) (finding the Act Constitutional); O V
Handy Bros Co v. Wallace, 16 F. Supp. 662, 666 (E.D. Pa. 1936)
(finding the regulation of live poultry dealers Constitutional).
---------------------------------------------------------------------------
Disclosure is a key component of the current regulations in place
pursuant to the Act. The current regulations require disclosure of
weights in the settlement of sales of livestock and live poultry,\50\
disclosure of certain potential conflicts of interest in the
consignment of livestock at auction,\51\ and disclosures for poultry
growers at contracting and on settlement, including the payment
formula, performance plans, grading certificates, and more.\52\
---------------------------------------------------------------------------
\50\ 9 CFR 201.55 and 9 CFR 201.99.
\51\ 9 CFR 201.56(d)
\52\ 9 CFR 201.100(a).
---------------------------------------------------------------------------
Like sec. 202(a) of the Act, sec. 5 of the Federal Trade Commission
(FTC) Act also prohibits deceptive practices.\53\ The FTC has long
implemented disclosure requirements under sec. 5 of the FTC Act for the
purpose of providing adequate information necessary for parties in
imbalanced business relationships to inhibit deceptive practices. In
1981, the FTC adopted a policy statement summarizing its longstanding
approach to deception cases, which AMS takes notice of.\54\ For
example, FTC's Franchise Rule requires the franchising industry to
provide prospective purchasers of franchises information necessary to
weigh the risks and benefits of an investment by providing required
disclosures in a uniform format.\55\ This rule is designed to similarly
provide current and prospective poultry growers with sufficient
information prior to entering into an agreement.
---------------------------------------------------------------------------
\53\ For a discussion of the Act in relation to the FTC Act,
see, e.g., Kades, Michael. ``Protecting Livestock Producers and
Chicken Growers,'' Washington Center for Equitable Growth, May 2022,
https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/.
\54\ Federal Trade Commission, Policy Statement on Deception,
1983, available at https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf.
\55\ 16 CFR part 436; 84 FR 9051 (May 2019).
---------------------------------------------------------------------------
Additionally, disclosure requirements are commonly utilized in the
regulation of financial markets, housing consumer protection, and other
complex markets with significant information imbalances, to prevent
deception and other abuses.\56\ In those markets, disclosure commonly
yields multiple benefits, starting with correcting the specific
information asymmetries that give rise to deception.\57\ For example,
disclosure can also function to create reputational disincentives to
counter potentially problematic behavior. This rule is designed in part
with that in mind. Given the longstanding set of grower complaints
about input differences, costly capital investments, and other
problematic practices arising from live poultry dealers' high degree of
control over growers under a poultry growing arrangement, transparency
can reasonably be expected to contribute, at least in part, to
improvements in fair dealing by market participants. Overall,
disclosure is recognized as a cost-effective tool to prevent deception
and improve market integrity.
---------------------------------------------------------------------------
\56\ D.W. Carlton and J.M. Perloff, Modern Industrial
Organization (1994): 624.
\57\ Paula J. Dalley, ``The Use and Misuse of Disclosure as a
Regulatory System,'' 34 Fla. St. U. L. Rev. 1089 (2007). https://ir.law.fsu.edu/lr/vol34/iss4/2.
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IV. Summary of the Proposed Rule
In the June 2022 proposal, AMS proposed to revise current
regulations in 9 CFR 201.100 regarding the timing and contents of
poultry growing contracts. Currently, that section sets forth the
disclosures a live poultry dealer must make to poultry growers and
prospective poultry growers in connection with poultry growing
arrangements. The proposal would have revised Sec. 201.100 by
requiring dealers to disclose additional information to poultry growers
and prospective poultry growers in connection with poultry growing
arrangements. In the proposal, the regulations also would have required
live poultry dealers to specify additional terms in poultry growing
contracts to improve transparency and forestall deception in the use of
poultry growing arrangements.
AMS also proposed to add a new Sec. 201.214 to the regulations to
require live poultry dealers to provide certain information to poultry
growers in tournament pay systems about integrator-controlled inputs
related to the poultry flocks growers receive for growout. Proposed new
Sec. 201.214 also would have added a new level of transparency to
grower ranking sheets. The proposal was intended to enable poultry
growers to evaluate the distribution of inputs among all tournament
participants in order for poultry growers to assess the effect on
grower payment.
Finally, AMS proposed to add to the list of definitions in Sec.
201.2 to define terms used in the proposed revisions to Sec. 201.100
and proposed new Sec. 201.214.
Upon consideration of public comments on the proposed rule, AMS
modified some of its proposed provisions in this final rule. An
overview of the new or revised rule provisions follows in Section V, a
discussion of changes from the proposed rulemaking is in Section VI,
and a discussion of the public comments on the proposed rulemaking is
in Section VII.
V. New or Revised Provisions
AMS addresses concerns related to market power imbalance and
asymmetric information in poultry grower contracting by adding two new
sections to 9 CFR part 201 that implements the Act. The first section
addresses the lack of transparency and
[[Page 83218]]
associated deceptive practices in broiler grower contracting. The
second section addresses the lack of transparency and associated
deceptive practices in the use of poultry grower ranking systems to
determine tournament grower payment settlements for broiler growers. In
both cases, live poultry dealers are required to make disclosures that
provide broiler growers more information with which to evaluate poultry
growing arrangements.
This rule will better balance the quantity, quality, and type of
critical information broiler growers, prospective broiler growers, and
live poultry dealers engaged in the production of broilers have as they
enter and operate under broiler growing arrangements. Through this
rulemaking, the agency requires dealers to provide growers with
critical information during the contracting process. This rule gives
growers the ability to understand and evaluate contracts from dealers.
The rule enhances the integrity of the marketplace overall, helps
reduce the risk of other forms of problematical market practices, such
as the inappropriate provision of different inputs to different
growers, and prevents certain deceptive practices by dealers.
AMS also made conforming changes and changes for clarity in Sec.
201.2, Sec. 201.100(a), and Sec. 201.100(b). This section provides an
overview of the new and revised provisions.
A. Definitions
This rule amends Sec. 201.2 by removing the paragraph designations
within the section, reorganizing the definitions alphabetically, and
adding definitions for new terms. The new terms are: breeder facility
identifier, breeder flock age, broiler, broiler grower, broiler growing
arrangement, complex, gross payments, grower variable costs, housing
specifications, inputs, letter of intent, Live Poultry Dealer
Disclosure Document, minimum number of placements, minimum stocking
density, number of placements, original capital investment, placement,
poultry grower ranking system, poultry growout, poultry growout period,
prospective broiler grower, prospective poultry grower, and stocking
density. Additionally, this rule incorporates into Sec. 201.2 the
statutory definitions of: commerce, live poultry dealer, poultry
grower, and poultry growing arrangement.
B. Disclosure
To address concerns related to deception and deceptive practices by
dealers in contracting for broiler growing arrangements and in the
operation of such contracts, this final rule adds new, enforceable
transparency requirements on live poultry dealers for the benefit of
growers. Specifically, it adds a new section at Sec. 201.102,--
disclosures for broiler production, and makes conforming changes to
Sec. 201.100(a) and (b). Currently, 9 CFR 201.100 describes the
documents that live poultry dealers must provide to poultry growers
within certain timeframes. Paragraph (a) of Sec. 201.100 requires a
dealer to provide the grower with a true written copy of the offered
poultry growing arrangement on the date the dealer provides poultry
housing specifications to the grower. The final rule retains the
requirement for all live poultry dealers but revises the language in
paragraph (a) for clarity by replacing ``house specifications'' with
``housing specifications,'' replacing the personal pronoun ``you'' with
``the dealer,'' and by removing the word ``as'' from the beginning of
the paragraph. Paragraph (b) of Sec. 201.100 requires live poultry
dealers to allow growers to discuss the terms of poultry growing
arrangement offers with a Federal or State agency, the growers' legal
and financial advisors and lenders, other growers for the same dealer,
and family members or other business associates with whom growers have
valid business reasons for consulting about the offered poultry growing
arrangements. This final rule retains the requirement but revises the
language to clarify that the right to discuss the terms of the poultry
growing arrangement offer also applies to prospective poultry growers
and, if applicable, to the accompanying Disclosure Document described
in Sec. 201.102. This rule also revises the language to remove the
personal pronoun ``you'' and replace ``must allow poultry growers to
discuss the terms of a poultry growing arrangement offer'' with ``may
not prohibit a poultry grower or prospective poultry grower from
discussing the terms of a poultry growing arrangement offer'' for
clarity. The rest of Sec. 201.100 remains unchanged.
This final rule adds new Sec. 201.102--Disclosures for broiler
production--establishing new disclosure requirements in addition to
those required by Sec. 201.100 for live poultry dealers engaged in the
production of broilers. This rule adds new definitions to Sec. 201.2
for: broiler, meaning any chicken raised for meat production; broiler
grower, meaning a poultry grower engaged in the production of broilers;
broiler growing arrangement, meaning a poultry growing arrangement
pertaining to the production of broilers; and prospective broiler
grower, meaning a person or entity with whom the live poultry dealer is
considering entering into a broiler growing arrangement.
New paragraph 201.102(a)--Obligation to furnish information and
documents--requires the live poultry dealer engaged in the production
of broilers (``dealer'') to provide the prospective or current broiler
grower with the Disclosure Document, as described in paragraph (b) of
the section, in addition to the true written copy of the broiler
growing arrangement, under three different scenarios.
First, under Sec. 201.102(a)(1), a live poultry dealer engaged in
the production of broilers seeking to renew, revise, or replace an
existing broiler growing arrangement or to establish a new broiler
growing arrangement that does not contemplate modifications to existing
housing specifications will be required to provide both the broiler
growing arrangement and the Disclosure Document to the grower at least
14 calendar days before the dealer executes the broiler growing
arrangement, provided that the grower may waive up to 7 calendar days
of that time period. Housing specifications is defined as a description
of--or a document relating to--a list of equipment, products, systems,
and other technical poultry housing components required by a live
poultry dealer for the production of live poultry. A live poultry
dealer will likely have multiple housing specifications that operate in
concert to create housing tiers at a given complex. The housing
specifications document or list should accurately reflect the minimum
requirements for qualification under a specific housing tier. Growers
agree to provide housing that meets the minimum requirements of a live
poultry dealer.
Second, under Sec. 201.102(a)(2), a live poultry dealer that
requires the grower to make an original capital investment to comply
with the dealer's housing specifications will be required to provide
the grower simultaneously with four relevant documents. These documents
are a true written copy of the broiler growing arrangement, the housing
specifications, the Disclosure Document, and a letter of intent that
can be relied upon to obtain financing for the original capital
investment.
Finally, under Sec. 201.102(a)(3), a live poultry dealer engaged
in the production of broilers seeking to offer or impose modifications
to existing housing specifications that could reasonably require the
grower to make an additional capital investment will be required to
provide the grower
[[Page 83219]]
simultaneously with four relevant documents. These documents are a true
written copy of the broiler growing arrangement, modified housing
specifications, the Disclosure Document, and a letter of intent that
can be relied upon to obtain financing for the additional capital
investment. AMS expects most growers will seek financing for additional
capital investments. The simultaneous production of the three other
documents will: (1) provide growers with improved information with
which to assess the new capital investment and (2) allow growers to
establish appropriate timelines for contemplating the investment.
The required contents and format of the Disclosure Document cover
pages are provided in Sec. 201.102(b)--Prominent disclosures.
Paragraph 201.102(b) specifies the required elements for the cover
pages of the Disclosure Document, including basic information about the
live poultry dealer, key points in the broiler growing arrangement, and
precise language for certain notices the dealer must make to the
grower. AMS has developed downloadable instructions that contain the
language required by Sec. 201.102(b) for live poultry dealers. The
instructions (Form PSD 6100 (Live Poultry Dealer Disclosure Document
Form Instructions, OMB Control No. 0581-0308)) are intended to simplify
compliance with these notification requirements and provide guidance
for complying with Sec. 201.102(c) and (d). Under Sec. 201.102(b)(1),
the required Disclosure Document cover page must include the title
``LIVE POULTRY DEALER DISCLOSURE DOCUMENT'' in capital letters and bold
type. Section 201.102(b)(2) requires live poultry dealers engaged in
the production of broilers to list their name, type of business
organization, principal business address, telephone number, email
address, and if applicable, primary internet website address.
Paragraph 201.102(b)(3) requires the dealer to specify the length
of the term of the broiler growing arrangement. Including this
information at the front of the Disclosure Document clearly identifies
for growers the live poultry dealer and the associated broiler growing
arrangement under consideration.
Under Sec. 201.102(b)(4), the live poultry dealer engaged in the
production of broilers must include a notice to the grower that
highlights that grower income may be significantly affected by
decisions made by live poultry dealers, and encourages growers to
carefully review the information in the Disclosure Document. Then,
under Sec. 201.102(b)(5), the dealer must state the minimum number of
poultry placements on the broiler grower's farm annually and the
minimum stocking density for each flock to be placed under the broiler
growing arrangement. The minimum stocking density is the ratio that
reflects the minimum weight of poultry per facility square foot the
live poultry dealer intends to harvest from the grower following each
growout.
New broiler growers may not understand how the discretionary
actions of live poultry dealers affect grower payments. Many broiler
growers are paid based on farm weight multiplied by a feed conversion
variable. A live poultry dealer exercising discretion in placements,
stocking density, and target weight is directly affecting that farm
weight basis. Cautioning growers about the potential impact of dealer-
controlled inputs and providing growers with the minimum number of
flocks and minimum stocking density of flocks to be placed with the
grower annually under the broiler growing arrangement will help growers
assess the projected baseline value of their broiler growing
arrangement.
Under Sec. 201.102(b)(6), the live poultry dealer engaged in the
production of broilers must include one of two alternative statements
depending on whether the offered broiler growing arrangement includes
housing specifications that require or could reasonably require an
original or additional capital investment. If the new, renewed,
revised, or replacement broiler growing arrangement does not
contemplate modifications to existing housing specifications, the
dealer must include the statement in Sec. 201.102(b)(6)(i) in the
Disclosure Document cover pages. The dealer's statement explains the
grower's right to read the Disclosure Document and all accompanying
documents carefully, and notes that the live poultry dealer is required
to provide the current or prospective broiler grower with the
Disclosure Document and a copy of the broiler growing arrangement at
least 14 calendar days before the dealer executes the broiler growing
arrangement, provided that the grower may waive up to 7 calendar days
of that time period. This timing has been amended to match the revised
timing in the final rule, as explained above. Alternatively, if the
dealer offers a new broiler growing arrangement that requires the
current or prospective broiler grower to make an original capital
investment, as in Sec. 201.102(a)(2), or offers or imposes
modifications to existing housing specifications that could reasonably
require the current broiler grower to make an additional capital
investment, as in Sec. 201.102(a)(3), the dealer must include the
statement in Sec. 201.102(b)(6)(ii).
The statement in Sec. 201.102(b)(6)(ii) explains the grower's
right to read the Disclosure Document and all accompanying documents
carefully, and notes that the live poultry dealer engaged in the
production of broilers is required to simultaneously provide the
broiler grower with the Disclosure Document, a copy of the broiler
growing arrangement, the new or modified housing specifications, and
the letter of intent. These required statements in the Disclosure
Document cover pages will notify broiler growers of their rights under
the regulations and indicate what documents they must receive from the
live poultry dealer within the described timeframes.
Under Sec. 201.102(b)(7), the live poultry dealer engaged in the
production of broilers must include a statement notifying the broiler
grower that the terms of the broiler growing arrangement will govern
the grower's relationship with the live poultry dealer's company. The
statement further notifies broiler growers of their right,
notwithstanding any confidentiality provision in the broiler growing
arrangement, to discuss the terms of the broiler growing arrangement
and the Disclosure Document with a Federal or State agency; the
grower's financial advisor, lender, legal advisor, or accounting
services representative; other growers for the same live poultry
dealer; and a member of the grower's immediate family or a business
associate. The statement explains that a business associate is a person
not employed by the broiler grower, but with whom the current or
prospective grower has a valid business reason for consulting when
entering into or operating under a broiler growing arrangement.
Finally, Sec. 201.102(b)(8) requires the live poultry dealer
engaged in the production of broilers to include the following
statement in bold type in the Disclosure Document cover pages: ``Note
that USDA has not verified the information contained in this document.
If this disclosure by the live poultry dealer contains any false or
misleading statement or a material omission, a violation of Federal
and/or State law may have occurred.'' With this language, this rule
clarifies that the Disclosure Document is not subject to agency review
prior to submission to broiler growers, and that legal recourse may be
available for some present and future controversies related to the
[[Page 83220]]
Disclosure Document and the broiler growing arrangement.
Paragraph 201.102(c)--Required disclosures following the cover
page--specifies the information the live poultry dealer engaged in the
production of broilers must provide in the Disclosure Document
following the cover pages. Under Sec. 201.102(c)(1), the dealer must
provide a summary of litigation over the previous 5 years between the
live poultry dealer and any broiler grower, including the nature of the
litigation, its location, the initiating party, a brief description of
the controversy, and any resolution. Information about a live poultry
dealer's litigation with poultry growers within the relevant period,
particularly the basis of the litigation and the volume of litigation
relative to the number of growers with whom the dealer contracts, will
help growers identify conflict origins and better assess potential risk
of conflict.
Paragraph 201.102(c)(2) requires the live poultry dealer engaged in
the production of broilers to provide a summary of all bankruptcy
filings in the previous 5 years by the dealer and any parent,
subsidiary, or related entity of the live poultry dealer. Bankruptcy of
the live poultry dealer poses a very real financial risk to grower
financial returns. Recent or current bankruptcy filing is an indicator
of the financial health of the live poultry dealer, which a broiler
grower may need to consider when deciding whether to enter or continue
a contractual relationship with the dealer.
Paragraph 201.102(c)(3) requires the live poultry dealer engaged in
the production of broilers to provide a statement that describes the
dealer's policies and procedures regarding the potential sale of the
broiler grower's farm or assignment of the broiler growing arrangement
to another party. This information is important for broiler growers to
have when considering a broiler growing arrangement because growers may
choose or be forced to exit poultry farming for various reasons, such
as the death or disability of the grower or the prospect of other
occupational opportunities. However, in some situations, farm sales and
assignments might be contingent on approval from the live poultry
dealer. Growers informed of these policies and procedures can develop a
coherent strategy, should they desire to exit poultry farming.
Paragraph 201.102(c)(4) contains new requirements for the live
poultry dealer engaged in the production of broilers to disclose their
policies and procedures, as well as any appeal rights, arising from
increased lay-out time; sick, diseased, and high early mortality
flocks; natural disasters, weather events, or other events adversely
affecting the physical infrastructure of the local complex or the
grower facility; other events potentially resulting in massive
depopulation of flocks affecting grower payments; feed outages
including outage times; and grower complaints relating to feed quality,
formulation, or suitability. If no policy or procedure exists, the live
poultry dealer must acknowledge ``no policy exists'' for each item
listed in Sec. 201.102(c)(4)(i)-(vi). The rule is not intended to
require live poultry dealers to have polices for every listed
occurrence, nor is the rule intended to have a legal consequence for
simply not having a policy. Disclosing, however, that no policy exists
is important to the poultry grower for risk assessment during the
contracting process, and for protection against arbitrary undisclosed
policies or procedures when the listed situations arise during the
operation of the contract. The live poultry dealer will also be
required to describe any policies on grower appeal rights associated
with these events should a grower disagree with the live poultry
dealer's actions or determinations.
Paragraph 201.102(c)(5) adds a new requirement for live poultry
dealers engaged in the production of broilers to disclose broiler
grower turnover data. Specifically, the live poultry dealer will be
required to provide a table showing the average annual broiler grower
turnover rates for the previous calendar year and the average broiler
grower turnover rates of the 5 previous calendar years at both a
company level and a local complex level. The broiler grower turnover
rate is the number of grower separations during the time period divided
by the average number of growers during the same period. The broiler
grower turnover rate relates to the general risk of contracting with a
live poultry dealer. Growers may compare the turnover rates of multiple
live poultry dealers as a consideration in assessing relative risk when
making contracting decisions. Instructions for calculating and
normalizing table values are provided on Form PSD 6100 (OMB Control No.
0581-0308).
Under Sec. 201.102(d)--Financial disclosures--live poultry dealers
engaged in the production of broilers must provide certain additional
information in the Disclosure Document. Under Sec. 201.102(d)(1), live
poultry dealers will be required to provide in the Disclosure Document
tables showing quintiles of average annual gross payments to broiler
growers at the local complex for each of the previous 5 years.\58\ If
there are nine or fewer growers at a local complex, live poultry
dealers will not be required to report quintiles of average annual
gross payments as this would result in the disclosure of the unique
payment information of one or more growers. Unique payment information
is considered confidential business information. For local complexes
with nine or fewer growers, live poultry dealers will be required to
report only the mean and one standard deviation from the mean of the
average annual gross payment to growers at the local complex. Average
payments must be shown in U.S. dollars per farm facility square foot.
Further, the required tables must be organized by year, housing
specification tier, and quintile or mean and standard deviation.\59\
Instructions for calculating and normalizing table values are provided
in Form PSD 6100. This rule adds to Sec. 201.2 a definition for
complex, meaning a group of local facilities under the common
management of a live poultry dealer. The definition states that a
complex may include, but not be limited to, one or more hatcheries,
feed mills, slaughtering facilities, or poultry processing facilities.
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\58\ The word ``local'' in this discussion is used to
differentiate between the complex with which the grower may be
considering a contract and all the other complexes a dealer may own.
\59\ Most dealers do not own or operate growout and breeder
facilities, but they do own everything else around which the growout
facilities are organized--i.e., the complex. The complex commonly
includes the processing plant and feed mill and may include other
production facilities. Growers produce for a particular local
complex, even though the dealer may own more than one local complex
and other complexes around the country. Depending on the technical
needs for optimizing poultry growth for each product type, the
dealer may have multiple different housing specifications for
growers who produce different products for the complex. Therefore,
the required table will show average payments to growers in each of
the different housing specifications at the complex.
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The required disclosure of historical revenue information relating
to growers in the same local complex will give the current or
prospective broiler grower considering entering into a broiler growing
arrangement a clear and accurate picture of potential earnings under
the arrangement and help the grower evaluate whether those earnings are
sufficient. Providing insights into the variability of cash flow within
any given year will enable growers to make informed business decisions,
manage risk, and improve farm management.
Paragraph 201.102(d)(2) provides that, if the housing
specifications for poultry growers under contract with the live poultry
dealer in the local complex are modified so that an additional capital
[[Page 83221]]
investment may be required, or if for some other reason annual gross
payment averages for the previous 5 years do not accurately represent
expected future grower payment averages, the Disclosure Document must
provide additional information. The additional information includes
annual payment projections by quintile or mean and standard deviation
(depending on the number of growers at the local complex). The
projections must reflect anticipated payments to growers under contract
with the complex with the same housing specifications for the term of
the applicable broiler growing arrangement. The dealer also must
explain why the historical data does not provide an accurate
representation of future earnings. Live poultry dealers engaged in the
production of broilers considering or undertaking actions related to
discretionary functions, such as changes in pay rates, pay systems,
housing specifications, growout models, stocking densities, or number
of annual placements, must provide grower payment projections to allow
growers to determine the financial feasibility of the upgrades and make
better-informed business decisions. Standardized grower payment
projections will include realistic expectations about future earnings.
Paragraph 201.102(d)(3) requires the live poultry dealer engaged in
the production of broilers to provide a summary of any information the
dealer collects or maintains pertaining to grower variable costs
inherent to broiler production. A conforming change, for clarity and
emphasis purposes, to Sec. 201.2 adds a definition for grower variable
costs to mean those costs related to poultry production that may be
borne by the poultry grower, which may include, but are not limited to,
utilities, fuel, water, labor, repairs and maintenance, and liability
insurance. The modified language is intended to help improve
readability; the listed costs are not required to be treated as grower
variable costs under a poultry growing arrangement if the parties
choose to contract for them in some other manner. Receiving information
on grower variable costs will allow broiler growers to make informed
decisions about their participation in the broiler production business.
Finally, under Sec. 201.102(d)(4), the live poultry dealer engaged
in the production of broilers must supply the contact information for
the State university extension service office or the county farm
advisor's office that can provide relevant information to the current
or prospective broiler grower about grower costs and broiler farm
financial management in the grower's geographic area.
Paragraph 201.102(e)--Small live poultry dealer financial
disclosures--exempts from the requirement to provide the Disclosure
Document required under Sec. 201.102(a)(1) live poultry dealers
engaged in the production of broilers that, together with all companies
controlled by or under common control with the dealer, slaughter fewer
than 2 million live pounds of broilers weekly (104 million pounds
annually). The exemption applies to these small operators as long as
their housing specifications are static. If their housing
specifications are modified, requiring an additional capital investment
from growers, these smaller operators will be required to provide the
complete Disclosure Documents, as specified in Sec. 201.102(a)(2) or
(a)(3), to balance any financial risk of the new investment. AMS
proposed--and retains this exemption in the final rule--because, in
general, smaller operators are in discrete market segments and not
engaged in the same market practices that are as likely to deceive as
larger live poultry dealers' practices, which reduces the risks to
growers and the need for the disclosures mandated in this rule.
Examples of such market practices include allowing growers to be
responsible for providing some inputs (e.g., feed), allowing growers to
use older growout facilities, or granting growers more discretion in
production decisions. Additionally, AMS will continue to monitor the
impact of this rule on small businesses to ensure that its analysis is
correct and to determine whether enforcement discretion may be
appropriate.
This final rule adds new Sec. 201.102(f)--Governance and
certification, which requires the live poultry dealer engaged in the
production of broilers to establish, maintain, and enforce a governance
framework designed to review and ensure the accuracy and completeness
of the Disclosure Document, and ensure the live poultry dealer's
compliance with all its obligations under the Act and its regulations.
The governance framework and anti-fraud protections require oversight
by corporate officers and ensure legal accountability. Under Sec.
201.102(f), the framework must be reasonably designed to audit the
accuracy and completeness of disclosures under the Disclosure Document
and ensure compliance with the Act and associated regulations. The
principal executive officer of the live poultry dealer's company, or a
person performing similar functions, must certify that the company
complies with the governance framework requirement and that the
Disclosure Document is accurate and complete. The certification
requirement is tailored to ensure the soundness and accuracy of the
procedures used to produce the Disclosure Document and the information
contained therein.\60\
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\60\ Certification of regulatory compliance requirements is
found in several regulatory regimes involving important market
compliance protocols. These include section 302 of the Sarbanes-
Oxley Act (Pub. L. 107-204; 116 Stat. 745) and Title XIII of the
Bank Holding Company Act (12 U.S.C. 1851 et seq.) and regulations
thereunder, commonly known as the Volcker Rule, including revisions
designed to simplify the rule. See ``Subpart D--Compliance Program
Requirements'' (12 CFR 248.20 and discussion in 79 FR 5535);
``Revisions to Prohibitions and Restrictions on Proprietary Trading
and Certain Interests in, and Relationships With, Hedge Funds and
Private Equity Funds'' (84 FR 61974).
---------------------------------------------------------------------------
The framework requirement helps ensure that the company has in
place specific steps that it will take to comply with this rule. It
seeks to balance effectiveness at providing the internal controls
necessary for reliable disclosure with some degree of flexibility to
enable dealers to design a framework appropriate to manage the risks
relating to the preparation of complete and accurate disclosures given
their own particular operations.
As explained earlier, to simplify compliance with this requirement,
AMS has developed instructions for compiling the Disclosure Document,
Form PSD 6100, with standardized language that live poultry dealers can
use. The language includes a certification statement the principal
executive officer of the live poultry dealer's company, or a person
performing similar functions, must sign.
Section 201.102(g)--Receipt by growers--requires a live poultry
dealer engaged in the production of broilers to include in the
Disclosure Document a signature page. The signature page includes a
statement highlighting the requirements for timely delivery of the
disclosure document, potential liability for a false or misleading
statement or a material omission, and how to contact USDA to file a
complaint at its website or by telephone.
The live poultry dealer must also obtain the current or prospective
grower's dated signature on the signature page, or obtain alternative
documentation to evidence delivery and that the dealer used best
efforts to obtain grower receipt according to the specified timeframes.
The dealer must provide a copy of the dated signature page or
alternative documentation to the grower and retain a copy of the dated
signature page or alternative documentation in the dealer's records
[[Page 83222]]
for 3 years following expiration, termination, or non-renewal of the
broiler growing arrangement. Including the required statement informs
growers that false or misleading statements or material omissions
contained in the Disclosure Document may form a basis for legal action.
Requiring live poultry dealers to collect and retain proof of
compliance will ensure compliance with the regulation.
Paragraph 201.102(g) also contains new clear language and
translation requirements for the document. Under Sec. 201.102(g)(3),
the Disclosure Document must be presented in a clear, concise, and
understandable manner for growers, and it references Form PSD 6100 for
guidance on the presentation of the information and required
calculations. Under Sec. 201.102(g)(4), the live poultry dealer must
make reasonable efforts to ensure that growers are aware of their right
to request translation assistance, and to assist the grower in
translating the Disclosure Document at least 14 calendar days before
the live poultry dealer executes the broiler growing arrangement that
does not contemplate modifications to the existing housing
specifications (provided that the grower may waive up to 7 calendar
days of that time period). For a broiler growing arrangement that does
contemplate modifications to the existing housing specifications, the
translation assistance must be provided when the live poultry dealer
provides the Disclosure Document to the grower.
Reasonable efforts include but are not limited to providing current
contact information for professional translation service providers,
trade associations with translator resources, relevant community
groups, or any other person or organization that provides translation
services in the broiler grower's geographic area. Reasonable efforts
may also include allowing additional time to review the translated
Disclosure Document. A live poultry dealer may not restrict a broiler
grower or prospective broiler grower from discussing or sharing the
Disclosure Document for purposes of translation with a person or
organization that provides language translation services.
AMS also added a provision to Sec. 201.100 preventing live poultry
dealers from restricting growers from sharing the Disclosure Documents
with legal counsel, accountants, family, business associates, and
financial advisors or lenders.
Nothing in the rule prevents companies from providing a
translation, provided it is complete, accurate, and not misleading. As
indicated previously, this rule is intended to improve transparency in
poultry production contracting by providing poultry growers with
relevant information to make more informed business decisions. These
new requirements will enable the prospective or current poultry grower
to better understand the information provided in the disclosures.
C. Contract Terms
Currently, Sec. 201.100(c)--Contracts; contents--specifies certain
information that must be included in a poultry growing arrangement. The
live poultry dealer is required to specify the duration of the contract
and conditions for termination of the contract by each of the parties,
all terms relating to the poultry grower's payment, and information
about a performance improvement plan for the grower, if one exists. In
the final rule, AMS did not reduce the requirements in Sec. 201.100(c)
for all live poultry dealers. AMS adds new Sec. 201.102(h)--Contract
terms--introducing additional requirements that apply exclusively to
live poultry dealers engaged in the production of broilers. Paragraph
201.102(h) requires live poultry dealers engaged in the production of
broilers to specify the minimum number of placements to be delivered to
the broiler grower's farm annually in each year of the contract, as
well as the minimum stocking density of each of those placements. The
minimum number of placements and the minimum stocking density of each
placement under the broiler growing arrangement directly impact broiler
grower revenues. Both figures are crucial to a current or prospective
grower's ability to evaluate potential earnings under the contract and
their ability to meet financial obligations. Requiring live poultry
dealers engaged in the production of broilers to include this
information in broiler growing contracts will improve growers' ability
to understand and evaluate contracts offered by dealers, and prevent
deceptive practices in the contracting process. Providing such
information may also allow lenders and guarantors to better evaluate
the desirability of broiler loans they are asked to consider.
D. Poultry Grower Ranking Systems
AMS adds a new Sec. 201.104--Disclosures for broiler grower
ranking system payments. This new section applies exclusively to live
poultry dealers engaged in the production of broilers who use a poultry
grower ranking system to calculate broiler grower payments. New Sec.
201.104 specifies the recordkeeping and disclosure requirements for
such dealers. AMS amends Sec. 201.2 to add definitions for terms used
in new Sec. 201.104. In addition, Sec. 201.100(f) of the current
regulations, which contains requirements for grouping or ranking sheets
and which AMS proposed to remove in the proposed rule, is retained in
the final rule to reflect that the existing grouping or ranking sheet
requirements continue to apply to all live poultry dealers, while the
additional grouping or ranking sheet requirements at Sec. 201.104(c)
apply exclusively to live poultry dealers engaged in the production of
broilers.
Currently, live poultry dealers are required under the regulations
at Sec. 201.100(d) to furnish poultry growers in poultry grower
ranking systems with settlement sheets that show the grower's precise
position in the ranking for that tournament. AMS adds a requirement in
new Sec. 201.104(a)--Poultry grower ranking system records--that
requires a live poultry dealer engaged in the production of broilers
who calculates payment under a poultry grower ranking system to produce
and maintain records showing how certain inputs were distributed among
participants. Further, the dealer must maintain those records for 5
years. Maintaining records allows USDA or any other party with the
proper legal authority to collect the records and access to records
during an investigation or legal action. AMS adds to Sec. 201.2 the
term poultry grower ranking system, meaning a system where the contract
between the live poultry dealer and the poultry grower provides for
payment to the poultry grower based upon a grouping, ranking, or
comparison of poultry growers delivering poultry during a specified
period. AMS also adds the term inputs to Sec. 201.2. Inputs is defined
as the various contributions to be made by the live poultry dealer and
the poultry grower as agreed upon by both under a poultry growing
arrangement. The definition also states that such inputs may include,
but are not limited to, animals, feed, veterinary services, medicines,
labor, utilities, and fuel.
Paragraph 201.104(b)--Placement disclosure--requires a live poultry
dealer engaged in the production of broilers who uses a poultry grower
ranking system to calculate broiler grower payments to provide certain
information about the flock placed with the broiler grower within 24
hours of the placement on the grower's farm. Specifically, the dealer
must provide the flock's stocking density, expressed as the number of
poultry per facility square foot; the names and ratios of breeds of the
flock delivered; the ratios of male and female birds in the flock if
the sex had been determined; the breeder
[[Page 83223]]
facility identifier; the age of the egg-laying breeder flock from which
each broiler grower's placement is produced; information regarding any
known health impairments of the breeder flock and of the poultry
delivered to the broiler grower; and what, if any, adjustments will be
made to grower pay to reflect any of these inputs. As explained earlier
in this document, each of these inputs may influence farm weight and
feed conversion. In some cases, a broiler grower may adjust management
practices in response to potential impacts of inputs on flock
performance. This requirement provides the broiler grower with basic,
accurate information about the placement at the outset of each growout
period that may inform the grower's management decisions during
growout. Armed with this information, growers may be better able to
efficiently allocate resources during flock growout and maximize their
individual profitability.
This rule adds definitions to Sec. 201.2. Breeder facility
identifier is defined as the identification a live poultry dealer
permanently assigns to distinguish among breeder facilities supplying
eggs for the poultry placed at the poultry grower's facility. As
permanent identifiers, these identifiers must be consistent flock to
flock. Identifiers that remain the same from one growout period to the
next allow growers to observe patterns, if any, related to the
performance of flocks originating with different breeders. Live poultry
dealers may assign alphabetic, numeric, or other identifiers to each
farm to keep the identity of individual breeder facilities private.
Breeder flock age means the age in weeks of the egg-laying flock
that is the source of poultry placed at the poultry grower's facility.
Depending on the type and breed of poultry being raised, the age of the
breeder flock producing the eggs from which poultry for growout are
produced may influence the grower's production decisions, for example,
whether additional monitoring is necessary, or determining the
appropriate height of waterers and feeders.
Under Sec. 201.104(c)--Poultry grower ranking system settlement
documents--a live poultry dealer engaged in the production of broilers
employing a poultry grower ranking system to calculate settlement
payments for broiler growers must provide every grower within the
tournament ranking system with settlement documents that show certain
information about each grower's ranking within the system, as well as
the inputs each broiler grower received, for each growout period.
Paragraph 201.104(c)(1) requires live poultry dealers engaged in the
production of broilers to show the housing specifications for each
grower grouped or ranked in the system during the specified growout
period.
Paragraph 201.104(c)(2) requires live poultry dealers engaged in
the production of broilers to make visible to all grower participants
in the poultry grower ranking system the distribution of dealer-
controlled inputs provided to all participants. Specifically, dealers
must disclose the stocking density at each grower's placement,
expressed as the number of poultry per facility square foot. The dealer
must: disclose the names and ratios of the breeds of poultry and the
ratios of male and female poultry, if the sex of the poultry has been
identified (i.e., ``sexed''), placed at each broiler grower's farm;
indicate with the use of breeder facility identifiers the source of
poultry placed at each broiler grower's farm; disclose the age of the
egg-laying breeder flock from which each broiler grower's placement is
produced; and, report the number of feed disruptions of 12 hours or
more each grower experienced during the growout period.
As mentioned above, live poultry dealers are currently required to
provide settlement sheets showing each grower's ranking within the
poultry grower ranking system and to show the actual figures used to
rank poultry growers for settlement purposes. However, poultry growers,
in particular broiler chicken growers, have complained to USDA that the
limited information they receive does not allow them to effectively
evaluate their performance compared to others because they do not know
how the inputs they receive compare to the inputs other growers
receive. Nor do they know how their performance relates to housing
specifications. Further, some growers believe other growers within the
same poultry grower ranking system receive superior inputs to their
own.
The placement and settlement information required under Sec.
201.104 will enable broiler growers to make factual comparisons about
their performance relative to other growers' performance within the
poultry grower ranking system.
E. Severability
AMS considers some but not all of the provisions of this final rule
to be severable. Specifically, changes to Sec. 201.100--Records to be
furnished poultry growers and sellers, and the provisions of new
Sec. Sec. 201.102--Disclosures for broiler production, and 201.104--
Disclosures for broiler grower ranking system payments, are generally
severable within themselves and from each other. Thus, if a court were
to find any of, some combination of, or some portion of those
provisions to be unlawful or unenforceable, AMS intends that all other
provisions as set forth in this rule would remain in effect to the
maximum possible extent.
For example, if a court were to find one of the required disclosure
items in Sec. 201.102(c) or (d) unlawful, AMS would nevertheless
intend the remaining disclosure requirements in Sec. 201.102 to stand.
However, provision of those disclosures to broiler growers is dependent
upon the requirement to do so in Sec. 201.102(a), so AMS would intend
that paragraph (a) in Sec. 201.102 is not severable from paragraphs
(c) or (d). In another example, AMS intends that the reference to Form
PSD 6100 instructions in Sec. 201.102 (g)(3) is severable from the
requirement in the same paragraph to present Disclosure Document
information in a clear, concise, and understandable manner. Thus, if
the reference to Form PSD 6100 were to be invalidated, live poultry
dealers would nevertheless be required to include all the elements of
the Disclosure Document as described Sec. 201.102 in a clear, concise,
and understandable manner.
AMS considers the provisions of Sec. 201.104 to be severable,
except that the requirement to maintain records related to broiler
grower production for 5 years in Sec. 201.104(a) is not intended to be
severable from either paragraph (b) or (c) of that section. Records
pertaining to the disclosures required in Sec. 201.104(b) and (c) must
be maintained and available to PSD for compliance and enforcement
purposes.
AMS considers the changes to Sec. 201.1--Terms defined, to be
inseverable, inasmuch as the newly defined terms in that section are
necessary for the clear application of the provisions of new Sec. Sec.
201.102 and 201.104. The new definitions clarify the fundamental
application of the rule to live poultry dealers, and cannot be severed
from the policy effect of the rule.
VI. Changes From the Proposed Rule
After consideration of public comments, AMS determined to adopt the
proposed changes with modification. This section provides an overview
of how the final rule differs from the proposed rule. Additional
discussion about AMS's consideration of public comments is presented in
Section VII.
Two significant changes between the proposed rule and the final
rule pertain
[[Page 83224]]
to the application of the new disclosure requirements and the placement
of the new requirements within 9 CFR part 201. Under the proposed rule,
AMS proposed additional disclosures that all live poultry dealers would
be required to furnish to poultry growers with whom dealers make
poultry growing arrangements. AMS also proposed to establish additional
disclosure requirements for live poultry dealers who use a poultry
ranking system to calculate grower payments. However, comments received
noted that the proposed rule was largely based on research into the
broiler industry and would be extremely difficult for turkey companies
to implement due to differences between turkey and chicken production.
AMS subject matter experts analyzed turkey production contracts from
across the country and found more variability among them than in
broiler contracts.\61\ The variability reflects the biological
differences found in turkeys and longer placement times with growers,
which can impact outcomes for producers.\62\ The variability in
contracts results in less uniformity of grower compensation models in
the turkey industry. Often, turkey grower compensation models are
predicated on static square footage payments, and/or two-stage
production, which reduce payment volatility and mitigate input
variability. Much of the disclosed information would not be applicable
or of significant value to turkey growers. While other turkey
compensation models tend to rely on a relative ranking component
similar to that for broilers, the benefit of disclosure is diluted, as
discretionary dealer actions currently may have less impact on grower
payments. As well, grower ranking systems account for a smaller
percentage of grower payments.
---------------------------------------------------------------------------
\61\ This corresponds with Hyaena, et. al., who state ``There is
. . . more variation among production contracts with respect to
division of risks and profits from growing turkeys than in the
broiler industry.'' See M. Hayenga, T. Schroeder, J. Lawrence, D.
Hayes, T. Vukina, C. Ward, and W. Purcell, ``Meat Packer Vertical
Integration And Contract Linkages in the Beef and Pork Industries:
An Economic Perspective'' (2003), available at https://econ2.econ.iastate.edu/faculty/hayenga/AMIfullreport.pdf (last
accessed April 2023).
\62\ Turkey growers may only produce two flocks per year while
broiler growers may produce five or more. See Poultry Industry
Manual (2013) available at https://www.aphis.usda.gov/aphis/ourfocus/animalhealth/emergency-management/CT_fadprep_Industry_Manuals.
---------------------------------------------------------------------------
Other commenters stated the new disclosure requirements are largely
meant for the broiler industry where most complaints arise. AMS has
received few turkey grower complaints. Other (non-broiler chicken)
poultry growers have similarly not expressed concerns regarding
practices in their industry. AMS will continue to evaluate the
presentation and operation of contracts and pay systems in the turkey
industry, and other forms of poultry production to ensure growers can
understand, evaluate, and compare contracts. However, AMS has
determined that additional proposed disclosure requirements are not
warranted for all live poultry dealers at this time.\63\ Thus, this
final rule's new disclosure requirements cover only live poultry
dealers engaged in the production of broiler chickens.
---------------------------------------------------------------------------
\63\ AMS underscores that the principles of full and fair
disclosure by live poultry dealers to avoid deceptive practices
apply throughout the industry, including with respect to turkey
growers. Although the specific disclosure mandates of this rule
will, at this time, apply only to the broiler chicken segment, AMS
intends to continue to monitor the entire industry.
---------------------------------------------------------------------------
In the final rule, AMS did not revise Sec. 201.100 to require all
live poultry dealers to provide certain additional disclosures to
prospective or current growers. Instead, disclosure requirements for
dealers engaged in broiler production are provided in new Sec.
201.102--Disclosures for broiler production--which applies exclusively
to live poultry dealers engaged in the production of broilers. The
final rule adds language in Sec. 201.102(a) clarifying that in
addition to complying with the existing requirements in Sec. 201.100,
live poultry dealers engaged in the production of broilers must comply
with additional disclosure requirements in new Sec. 201.102.
The proposed rule in Sec. 201.100(a) would have required a live
poultry dealer engaged in the production of broilers seeking to renew,
revise, or replace an existing broiler growing arrangement or to
establish a new broiler growing arrangement that does not contemplate
modifications to existing housing specifications to provide both the
broiler growing arrangement and the Disclosure Document to the grower
at least 7 calendar days before the dealer executes the broiler growing
arrangement. Several commenters from the grower and advocacy sectors
said that this time period was inadequate, and urged AMS to require
that the documents be provided 14 days or 30 days in advance of the
broiler growing arrangement's execution, to enable adequate time for
growers to review and act upon the information provided in the
documents. AMS also identified ambiguity in whether 7 days was business
days or calendar days.
This final rule revises the timing in Sec. 201.102(a)(1) to
require that live poultry dealers provide growers with the required
documents at least 14 calendar days before the live poultry dealer
executes the broiler growing arrangement, provided that the grower may
waive up to 7 calendar days of that time period. AMS is making this
change in response to some grower comments stating that growers need
additional time to adequately review the documents. A central purpose
of the Disclosure Document is to improve the understanding of
production agreements to thwart deception, and adequate time to review
the document is essential to the rule fulfilling its purpose. The 7-day
waiver addresses other grower commenter concerns related to continuity
of production. AMS does not wish to inadvertently insert unnecessary
time delays into the grower's planning process during contracting, in
particular as this provision exclusively addresses the circumstance
where the grower is not contemplating modifications to the farm housing
specifications. The final rule seeks to maximize the grower's ability
to determine the length of time necessary to review the documents,
whether that be a full 14 calendar days or a shorter time period if the
grower determines that is more appropriate. The rule revises the review
period to 14 calendar days, but provides growers the option to waive 7
of those days if they prefer. Seven calendar days remains the minimum
review time to provide growers with a guaranteed time to review the
documents and thus protects growers from coercion by live poultry
dealers--a risk also identified by commenters. Absent the provision,
live poultry dealers could press growers to waive their entire review
period rights. In AMS's estimation, a 14-calendar-day period is useful
to some growers to review and have the time to act on the documents in
the circumstance of no contemplated housing modification, and that a 7-
calendar-day period is minimally sufficient to enable growers to review
the Disclosure Documents, and reduce the potential for coercive
behavior where growers so choose that shorter time period.
Where a live poultry dealer contemplates modifications to the
housing specifications--such as in the circumstance of a new or
additional capital investment or a modification to the housing
specification--this rule provides the grower with significantly more
time to review the contract and the Disclosure Document than current
practice. Currently, growers commonly do not receive their contract
until after a capital investment has occurred. In this rule, by
requiring notice to the
[[Page 83225]]
grower at the same time as the new housing specification, growers
receive the critical information embedded in the contract and
Disclosure Document before the grower decides to engage in any
construction or borrowing to make the necessary housing modifications.
Capital investments generally take months, not days, and the grower is
well positioned to control his or her review of the documents in the
course of making any decisions regarding whether to engage in
borrowing, construction, or contracting in relation to the potential
broiler growing arrangement.
Under proposed Sec. 201.214, AMS proposed to establish
recordkeeping and disclosure requirements for all live poultry dealers
who use a poultry grower ranking system to calculate grower payments.
Again, AMS determined the disclosure requirements proposed in Sec.
201.214 are not warranted for all live poultry dealers who use a
poultry grower ranking system to calculate grower payments based on its
analysis of poultry contracts and grower complaints, as previously
discussed. Therefore, in the final rule, AMS modified the proposed
requirements to apply exclusively to live poultry dealers engaged in
the production of broilers who use a poultry grower ranking system to
calculate grower payments, moved the requirements from proposed new
Sec. 201.214 to new Sec. 201.104, and renamed the section
``Disclosures for broiler grower ranking system payments.'' AMS also
retained the requirements in Sec. 201.100(f) of the current
regulations, which it had proposed to move to new Sec. 201.214 and
modify in the proposed rule. AMS added language to Sec. 201.104(c) to
indicate that in addition to complying with the requirements of Sec.
201.100, live poultry dealers engaged in the production of broilers who
use a poultry grower ranking system to calculate grower payments must
provide additional information in accordance with new Sec. 201.104.
To limit Sec. Sec. 201.102 and 201.104 in the final rule to
broiler contracts, AMS added to Sec. 201.2 the definitions of broiler
to mean any chicken raised for meat production, broiler grower to mean
a poultry grower engaged in the production of broilers, broiler growing
arrangement to mean a poultry growing arrangement pertaining to the
production of broilers, and prospective broiler grower to mean a person
or entity with whom the live poultry dealer is considering entering
into a broiler growing arrangement.
AMS proposed in Sec. 201.100(b)(5) to require live poultry dealers
to include in the Disclosure Document the minimum number of placements
on the grower's farm annually and the minimum stocking density of each
flock. In the final rule, AMS moved this requirement to Sec.
201.102(b)(5), which only applies to live poultry dealers engaged in
the production of broilers. AMS also revised the introductory statement
in Sec. 201.102(b)(5) of the final rule to add clarifying language.
AMS proposed to require live poultry dealers to disclose a summary
of all litigation with any poultry grower over the prior 6 years, as
well as of all bankruptcy filings over the prior 6 years for the dealer
and any parent, subsidiary, or related entity. However, commenters
representing the poultry industry noted that the 6-year disclosure
period associated with these requirements was inconsistent with other
disclosure requirements covering the prior 5 years. Therefore, to
ensure the uniformity of recordkeeping obligations and to reduce the
burden on regulated entities, AMS revised Sec. Sec. 201.102(c)(1) and
(2) to require live poultry dealers engaged in the production of
broilers to disclose litigation with any broiler grower over the prior
5 years, as well as bankruptcy filings in the prior 5 years by the
dealer and any parent, subsidiary, or related entity.
The proposed rule would have required live poultry dealers to make
various financial disclosures to poultry growers, including a table
showing ``average annual gross payments'' made to growers at all
complexes owned or operated by the live poultry dealer for the previous
calendar year, as well as to growers at the local complex. Poultry and
meat trade associations suggested AMS require dealers to disclose
average annual gross payments only for the grower's local complex.
These commenters noted that complexes in different geographic areas
face different economic conditions, arguing that information about
payments at other complexes would not be useful and would potentially
confuse growers. This final rule does not include the proposed
requirement to disclose payment information for all complexes owned or
operated by the dealer. This final rule does maintain the proposed
requirement for live poultry dealers engaged in the production of
broilers to disclose payment information only relating to the broiler
grower's local complex at Sec. 201.102(d)(1).
Both growers and live poultry dealers also requested that AMS
provide more specificity on how to calculate average annual gross
payments. While the proposed rule provided detail on calculations, the
commenters felt the instructions lacked sufficient specificity to
assure that live poultry dealers could comply and that poultry growers
received adequate data on which to base business decisions. Therefore,
AMS developed more in-depth instructions on how to calculate average
annual gross payments, which are included in Form PSD 6100. This final
rule provides that, if there are nine or fewer growers at a local
complex, live poultry dealers will be required to report only the mean
and one standard deviation from the mean of the average annual gross
payment to growers at the local complex rather than average annual
gross payments distributed by quintile. This modification from the
proposed rule is necessary because disclosing average annual gross
payments distributed by quintile in these circumstances would result in
disclosure of the unique payment information of one or more growers,
which AMS considers to be confidential business information.
AMS added to Sec. 201.2 the definition of gross payments to mean
the total compensation a poultry grower receives from the live poultry
dealer, including but not limited to base payments, new housing
allowances, energy allowances, square footage payments, extended lay-
out time payments, equipment allowances, bonus payments, additional
capital investment payments, poultry litter payments, etc., before
deductions or assignments are made.
In the proposed rule, AMS requested comment on proposed disclosures
regarding the financial health and integrity of the live poultry
dealer, and whether those were adequate to enable growers to make sound
business decisions. Commenters suggested that growers could utilize
other information in addition to information specified in the proposed
rule in making their business decisions. Specifically, commenters
recommended that AMS also require disclosure of grower turnover data.
Grower turnover rates are among the data growers may find valuable when
making business decisions, as they relate to the risk of termination or
non-renewal when contracting with a live poultry dealer. Just as
growers will be able to rely on other required disclosures to
contemplate their production and financial risks, this information
would allow growers to compare the turnover rates of multiple live
poultry dealers as a risk factor when making contracting decisions.
Because grower turnover rates can be used in a manner similar to other
required disclosures, AMS added a provision at Sec. 201.102(c)(5) of
the final rule requiring live poultry dealers engaged in the production
of broilers to
[[Page 83226]]
disclose average annual broiler grower turnover rates for the previous
calendar year and the average of the 5 previous calendar years at both
the company level and the local complex level. Instructions for how to
calculate average annual broiler grower turnover rates are included in
Form PSD 6100.
AMS proposed requirements for several disclosures of specific data
and information advising growers of their rights. AMS did not
specifically propose to require live poultry dealers to disclose their
policies on grower payment with respect to increased lay-out time,
diseased flocks, natural disasters and other depopulation events, feed
issues or outages, or policies on grower appeal rights and processes,
although in the proposed rule, AMS asked whether the final rule should
require disclosures on these types of topics. Multiple commenters
suggested AMS include these disclosures. The commenters stated that
these disclosures would aid growers in decision making and reduce
confusion during times of disease or other disaster. Therefore, this
final rule requires live poultry dealers engaged in the production of
broilers to disclose policies and procedures on increased lay-out time;
sick, diseased, or high early-mortality flocks; natural disasters,
weather events, or other events adversely affecting the physical
infrastructure of the local complex or the grower facility; other
events potentially resulting in massive depopulation of flocks,
affecting grower payments; feed outages including outage times; and
grower complaints relating to feed quality, formulation, or
suitability, as well as any appeal rights arising out of these events.
The proposed rule proposed to exempt live poultry dealers,
including all parent and subsidiary companies, slaughtering fewer than
2 million live pounds of poultry weekly (104 million pounds annually)
from the Disclosure Document requirements if the new, renewed, or
replacement contract offered by one of these dealers does not include
revisions to existing housing specifications that would require the
grower to make new or additional capital investments. This final rule
limits the proposed exemption to clarify that the exemption applies if
the live poultry dealer engaged in the production of broilers that
together with all companies controlled by or under common control with
the dealer slaughter fewer than 2 million live pounds of poultry weekly
(104 million pounds annually).
The proposed rule would have required dealers to establish,
maintain, and enforce a governance framework reasonably designed to
audit the accuracy and completeness of the disclosures in the
Disclosure Document, which must include audits and testing, as well as
reviews of an appropriate sampling of Disclosure Documents by the
principal executive officer or officers. AMS determined that the
requirement in Sec. 201.102(f)(2) for the principal executive officer
or officers to certify the governance framework and the accuracy of the
Disclosure Document adequately covers the intended requirement for
officers of this level to be focused on the effectiveness of the
governance framework. AMS concluded that this level of detail about the
audit process for the Disclosure Document was not necessary, because
AMS finds the certification requirement regarding the governance
framework to be sufficient to ensure a reasonable level of accuracy of
these statements. The company will still need to maintain a governance
framework for ensuring the reliability of the statements, which the
certification attests to. The principal executive officer will need to
tailor the framework to the particular levels of complexity of the
company and its poultry business, its approach to internal controls,
and other factors such as its track record of regulatory compliance, to
ensuring the accuracy of statements.
In some circumstances, audit, testing, and reviews by senior
officers may be necessary to ensure compliance, but that may not be the
case in all circumstances. The requirements of this final rule place
the opportunity--and the responsibility--on the principal executive
officer to tailor the needs of the compliance program to the
particulars of the business and its own compliance culture, as
reflected in the governance framework. A ``reasonably designed''
framework depends on the particular facts and circumstances of the
poultry company and its growers, with larger, more complex processors
adopting more comprehensive systems appropriate to the scope of their
operations. AMS will evaluate the effectiveness of the governance
framework in part through examining the reliability of producing
accurate disclosures but may also examine a dealer's internal controls
and other factors relevant to the facts and circumstances of the
dealer, such as its recent track record of compliance with relevant
laws and regulations.
AMS will investigate questions of statement inaccuracy and may take
enforcement actions against companies that do not maintain sufficient
governance frameworks. Violations may result in issuance of a Notice of
Violation or referral to the Attorney General of the United States for
prosecution pursuant to Section 404 of the P&S Act, 7 U.S.C. 224.
Growers may also bring private cases in response to inaccurate or
misleading disclosures under the Act or under other laws. Therefore,
AMS removed the requirement proposed in Sec. 201.100(f)(1)(i) for
audit, testing, and reviews of an appropriate sampling of Disclosure
Documents by the principal executive officer or officers.
The proposed rule would have required dealers to include a
statement on the Disclosure Document's grower signature page advising
growers that a dealer's failure to deliver the document within the
required timeframe, as well as false or misleading statements or
material omissions within the Disclosure Document, may violate Federal
and State laws, and that such violations could be determined to be
unfair, unjustly discriminatory, or deceptive and unlawful under the
Act. The proposed statement further informed growers that allegations
of such violations could be reported to AMS's PSD. The final rule
retains the required advisory statements; however, they have been
modified to inform growers they may submit complaints to USDA's Farmer
Fairness portal at https://www.usda.gov/farmerfairness or by telephone
at 1-833-DIAL-PSD (1-833-342-3773) if they suspect a violation of the
Act or any other Federal law governing fair and competitive markets,
including contract growing, of livestock and poultry.
The proposed rule would have required live poultry dealers to
obtain a poultry grower's signature to verify delivery of the
Disclosure Document. Live poultry dealers noted that there may be
instances in which obtaining a grower signature is not possible, such
as grower unavailability or refusal to sign. AMS recognizes there is no
mechanism to require growers to sign for receipt of the Disclosure
Document. Commenters said it is appropriate in these instances to have
other means available for the live poultry dealer to verify delivery of
the Disclosure Document to the grower. AMS agrees it is necessary to
have alternative methods of compliance. Therefore, this final rule
allows flexibility for live poultry dealers engaged in the production
of broilers to have alternative means to prove delivery and to
demonstrate that best efforts were used to obtain grower receipt. In
those circumstances, this final rule does not require a specific method
of delivery but requires dealers to obtain and maintain evidence that
the live poultry dealer
[[Page 83227]]
delivered the Disclosure Document to the grower or prospective grower
in the required timeframe and that best efforts were used to obtain
grower receipt.
Based on its experience, AMS expects live poultry dealers to engage
in personal communications with the growers in the course of the
contracting process, and so expects that best efforts include personal
communication with growers in the course of delivering the Disclosure
Document and seeking grower receipt. Where a grower refuses to sign or
has made him or herself unavailable to the live poultry dealer,
alternative documentation includes proof of delivery and statements or
affidavits to support the communication and grower's refusal to sign
receipt, or the circumstances of the grower's unavailability. AMS
expects unavailability to be a rare circumstance requiring exceptional
justification, given the nature of the contracting process between live
poultry dealers and growers. The proof of delivery and best-efforts
requirement, as an alternative, provide the best assurance possible in
those circumstances that the grower receives and is able to evaluate in
a timely manner the Disclosure Document. The grower receipt
requirement, and this alternative, is important to AMS achieving the
purposes of the rule because it minimizes the risk that live poultry
dealer may deliver the Disclosure Document through means that may, in
practice, not be read or noticed by the grower under the time frames
provided, and so obstruct the purposes of ensuring the grower can
evaluate the information before the grower makes significant decisions.
AMS notes that grower and advocacy commenters supported the retention
of the grower receipt requirement principally for those purposes.
The proposed rule would have required live poultry dealers to make
several disclosures to poultry growers but did not include the exact
language and wording they should use. Numerous commenters from the
grower and live poultry dealer sectors said that these provisions
should be in plain and unambiguous language to avoid discrepancies in
interpretation among the various parties, regulators, and courts. One
purpose of the Disclosure Document is to improve the understanding of
production agreements to thwart deception; thus clear, concise, and
understandable language is necessary. Therefore, this final rule adds a
new Sec. 201.102(g)(3) to the final rule to require live poultry
dealers engaged in the production of broilers to present the
information in the Disclosure Document in a clear, concise, and
understandable manner for growers. Paragraph Sec. 201.102(g)(3) also
notes that dealers may refer to Form PSD 6100 for further instructions
on the presentation of information and certain calculations.
Some commenters also indicated a need to ensure growers who are not
native speakers of English can understand the disclosures. As noted by
multiple commenters, non-native speakers of English are engaged in
poultry growing. For example, in the early 2000s, large numbers of
first-generation immigrant Hmong people, many of whom had been farmers
in their native Laos, moved from urban areas in California, Minnesota,
and North Carolina to the Ozark region in and around southwest Missouri
and started growing poultry. Pew Research Center studies show that the
English proficiency of the Hmong population in the U.S. in 2019 was
only 68% and, among foreign-born Hmong, English proficiency is just
43%.\64\ Data supports the concerns expressed by commenters regarding
providing poultry growers information in a manner growers are able to
understand. AMS agrees that providing documents in the language growers
best understand ensures fairness and reduces the risk of deception.
Therefore, AMS added new Sec. 201.102(g)(4) to the final rule to
require that live poultry dealers must make reasonable efforts to
ensure that growers are aware of their right to request translation
assistance and to assist the grower in translating the Disclosure
Document. This must be provided at least 14 calendar days before the
live poultry dealer executes the broiler growing arrangement that does
not contemplate modifications to the existing housing specifications
(provided that the grower may waive up to 7 calendar days of that time
period). Where modifications to the existing housing specifications are
contemplated, it must be provided when the live poultry dealer provides
the grower with the Disclosure Document. The timing requirement aligns
with the provision of the Disclosure Document by the live poultry
dealer as set forth in Sec. 201.102(a) as discussed above. Although
they are not required to do so, nothing in the rule prevents companies
from providing a translation, provided it is complete, accurate, and
not misleading.
---------------------------------------------------------------------------
\64\ Abby Budimen, ``Hmong in the U.S. Fact Sheet,'' Pew
Research Center's Social & Demographic Trends Project (May 24,
2022), available at https://www.pewresearch.org/social-trends/fact-sheet/asian-americans-hmong-in-the-u-s/ (last accessed April 2023).
---------------------------------------------------------------------------
The final rule makes several other changes to the definitions
proposed in Sec. 201.2 of the proposed rule. It revises the
definitions of grower variable costs, growout, and growout period and
changes the latter two terms to poultry growout and poultry growout
period.
The proposed rule would have defined grower variable costs as
``those costs related to poultry production that may be borne by the
poultry grower, including, but not limited to, utilities, fuel, water,
labor, repairs and maintenance, and liability insurance.'' Commenters
representing the grower sector shared concern that the definition would
mandate that the costs listed were the only ones to potentially be
borne by the grower. Commenters stressed that these costs are often the
subject of negotiation between grower and live poultry dealer, with
some costs being paid by the live poultry dealer. Therefore, AMS
modified the definition in Sec. 201.2 of the final rule to replace the
words ``including, but not limited to'' with the words ``which may
include, but are not limited to.'' While this does not substantively
change the legal standard, this modification emphasizes that these are
examples of costs, yet still retains a definition that allows the
listed costs to be treated as grower variable costs under a poultry
growing arrangement if the parties choose to contract for them in some
other manner.
AMS also proposed to define growout as ``the process of raising and
caring for livestock or poultry in anticipation of slaughter'' and
growout period as ``the period of time between placement of livestock
or poultry at a grower's facility and the harvest or delivery of such
animals for slaughter, during which the feeding and care of such
livestock or poultry are under the control of the grower.'' However, a
commenter said the references to ``livestock or poultry'' in the
proposed definition of growout period may have unintended consequences
across other segments of the protein industry that do not use
tournament pay systems, as the definition of livestock in the Act
includes ``cattle, sheep, swine, horses, mules, or goats.'' Therefore,
in the final rule, AMS modified the definitions of these two terms to
remove references to livestock. In addition, AMS revised these terms to
refer to poultry growout and poultry growout period to clarify that it
intends these definitions to apply only in the poultry context for the
purposes of this rule.
AMS also made a few minor changes for clarification purposes. One
change is found in Sec. 201.104(a), substituting the word ``these''
for ``such'' in reference to poultry growing ranking system records.
[[Page 83228]]
The change was made to add specificity for the records that are
required to be maintained by live poultry dealers. Another change was
made in Sec. 201.102(b)(8), substituting the word ``statement'' for
``sentence''. This is a clarifying change to both maintain uniformity
in the language used throughout the regulatory text and to ensure
dealers understand the entire statement provided by 201.102(b)(8) must
be disclosed to growers.
Table 1 summarizes key differences between the proposed rule and
the final rule.
Table 1--Key Differences Between the Proposed Rule and Final Rule
----------------------------------------------------------------------------------------------------------------
Provision Proposed rule Changes to final rule
----------------------------------------------------------------------------------------------------------------
Applicability...................... All proposed requirements related to Creates new section Sec. 201.102--
disclosures and contract terms are Disclosures for broiler production
in Sec. 201.100--Disclosures and covering requirements for live
records to be furnished poultry poultry dealers engaged in the
growers and sellers (existing production of broilers, while
section with proposed revision of retaining requirements in current
heading). Sec. 201.100 for all live poultry
dealers.
Sec. 201.100(a) All live poultry Sec. 201.102(a) Changes
dealers must provide Live Poultry requirements to apply only to live
Dealer Disclosure Document and poultry dealers engaged in the
related documents to prospective or production of broilers.
current poultry growers. Adds wording to emphasize that these
requirements apply in addition to
the existing requirements in Sec.
201.100(a) for live poultry dealers
engaged in the production of
broilers.
Removes Sec. 201.100(f)--Grouping Retains Sec. 201.100(f).
or ranking sheets of existing rule.
Sec. 201.100(a)(1) When no Sec. 201.102(a)(1) Changes the
modifications to housing timing to 14 calendar days,
specifications are contemplated, a provided that the grower may waive
live poultry dealer must provide the up to 7 calendar days of that time
poultry growing arrangement and the period.
Disclosure Document at least 7 days Conforming changes made to the
before the live poultry dealer prominent disclosures to be
executes the poultry growing provided the grower and to receipt
arrangement. by growers. Sec.
201.102(b)(6)(i), Sec.
201.102(g)(4).
Sec. 201.100(h) Clarifies that the Sec. 201.100(b) Revises wording to
right to discuss the terms of the emphasize that the right for
poultry growing arrangement offer poultry growers or prospective
also applies to prospective poultry poultry growers to discuss the
growers and to the accompanying terms of the poultry growing
Disclosure Document. arrangement offer applies to the
Disclosure Document if that
document is applicable.
Sec. 201.100(i)(2) All live poultry Sec. 201.102(h) Moves requirements
dealers must include minimum annual to Sec. 201.102 and revises them
flock placements and minimum to apply only to live poultry
stocking density in contract. dealers engaged in the production
of broilers.
All provisions related to disclosures Renumbers section and revises
upon flock placement or settlement heading to Sec. 201.104--
are in proposed new Sec. 201.214-- Disclosures for broiler grower
Transparency in poultry grower ranking system payments.
ranking pay systems.
Sec. 201.214(b) All live poultry Sec. 201.104(b) Changes
dealers who use a poultry grower requirements to apply only to live
ranking system to calculate grower poultry dealers engaged in the
payments must provide certain production of broilers.
disclosures upon flock placement.
Sec. 201.214(c) All live poultry Sec. 201.104(c) Changes
dealers who use a poultry grower requirements to apply only to live
ranking system to calculate grower poultry dealers engaged in the
payments must provide certain production of broilers.
disclosures upon settlement. Clarifies that these dealers also
must comply with the existing
grouping or ranking sheet
requirements in retained Sec.
201.100 and that disclosures need
not show the names of other
growers.
Sec. 201.214(c)(1) Live poultry Sec. 201.104(c)(1) Removes
dealers who use a poultry grower requirements duplicated in retained
ranking system to calculate grower Sec. 201.100(f), leaving only the
payments must provide the grower a requirement for grouping or ranking
copy of a grouping or ranking sheet sheets to show each grower's
showing the grower's precise housing specification as applicable
position for that period. This sheet exclusively to live poultry dealers
does not need to show the names of engaged in the production of
other growers, but must show their broilers.
housing specification and the actual
figures the grouping or ranking for
each grower in the group during the
period is based on.
Terminology throughout rule refers to Updates terminology to specifically
poultry, poultry growers, poultry refer to broilers, broiler growers,
growing arrangements, prospective broiler growing arrangements,
poultry growers, and live poultry prospective broiler growers, and
dealers. live poultry dealers engaged in the
production of broilers where
necessary to describe which
entities must comply with new
requirements.
Required Disclosures Following the Sec. 201.100(c)(1) Live poultry Sec. 201.102(c)(1) Live poultry
Cover Page (Sec. 201.102(c)). dealers must disclose summary of dealers engaged in the production
litigation with any poultry grower of broilers must disclose summary
over the prior 6 years. of litigation with any broiler
Sec. 201.100(c)(2) Live poultry grower over the prior 5 years.
dealers must disclose summary of Sec. 201.102(c)(2) Live poultry
bankruptcy filings by dealer and any dealers engaged in the production
parent, subsidiary, or related of broilers must disclose summary
entity over the prior 6 years. of bankruptcy filings by dealer and
any parent, subsidiary, or related
entity over the prior 5 years.
Not in proposed rule................. Sec. 201.102(c)(4) Adds
requirement that live poultry
dealers engaged in the production
of broilers must include
description of policies,
procedures, and appeal rights in
Disclosure Document.
[[Page 83229]]
Not in proposed rule................. Sec. 201.102(c)(5) Adds
requirement that live poultry
dealers engaged in the production
of broilers must include grower
turnover rate data in Disclosure
Document.
Financial Disclosures (Sec. Sec. 201.100(d)(1) As part of Removed from final rule.
201.102(d)). required financial disclosures, live
poultry dealers must provide 1 year
of average annual gross payments to
growers for all complexes the dealer
owns or operates.
Sec. 201.102(d)(1) Revises
paragraph to specify that live
poultry dealers engaged in the
production of broilers must only
calculate average annual gross
payments for growers at the local
complex distributed by quintiles
for complexes with 10 or more
growers, and for complexes with
nine or fewer growers, must
calculate the mean payment and one
standard deviation from the mean.
Small Live Poultry Dealer Financial Sec. 201.100(e) A live poultry Sec. 201.102(e) Revises provision
Disclosures (Sec. 201.102(e)). dealer, including all parent and to provide that exemption applies
subsidiary companies, slaughtering for live poultry dealers engaged in
fewer than 2 million live pounds of the production of broilers if the
poultry weekly (104 million pounds dealer together with all companies
annually) is exempt from Disclosure controlled by or under common
Document requirements if contract control with the dealer slaughters
does not contemplate revisions to fewer than 2 million live pounds of
existing housing specifications that broilers weekly (104 million pounds
would require poultry grower to make annually).
capital investments.
Governance and Certification (Sec. Sec. 201.100(f)(1)(i) Live poultry Removed from final rule.
201.102(f)). dealer governance framework must
include audits, testing, and review
of sample of Disclosure Documents.
Receipt by Growers (Sec. Sec. 201.100(g)(1) Disclosure Sec. 201.100(g)(1) Adds language
201.102(g)). Document must include grower to statement regarding grower
signature page containing specific rights to state that growers may
statement regarding grower rights report potential violations to USDA
related to document. and DOJ portal at https://www.farmerfairness.gov. or by phone
at 1-833-DIAL-PSD (1-833-342-3773)
and obtain further information on
rights and responsibilities under
the Act at www.ams.usda.gov.
Sec. 201.100(g)(2) Live poultry Sec. 201.102(g)(2) Adds provision
dealers must verify grower receipt allowing live poultry dealers
by obtaining grower's dated engaged in the production of
signature on signature page of broilers to obtain alternative
Disclosure Document. documentation to evidence delivery
and that best efforts were used to
obtain grower receipt.
Not in proposed rule................. Sec. 201.102(g)(3) Adds
requirements for live poultry
dealers engaged in the production
of broilers to ensure that the
Disclosure Document is written in
clear, concise, and understandable
manner for growers.
Not in proposed rule................. Sec. 201.102(g)(4) Adds
requirement that the dealer must
make reasonable efforts to ensure
that growers are aware of their
right to request translation
assistance, and to assist the
grower in obtaining a translation
or understanding the Disclosure
Document at least 14 calendar days
before executing a growing
arrangement that does not
contemplate modifications to the
existing housing specifications
(provided that the grower may waive
up to 7 calendar days of that time
period). Where modifications to the
existing housing specifications are
contemplated, it must be provided
when the live poultry dealer
provides the grower with the
Disclosure Document.
Not in proposed rule................. Adds definitions for broiler,
broiler grower, broiler growing
arrangement, and prospective
broiler grower.
Not in proposed rule................. Adds definition for gross payments.
Grower variable costs is defined as Revises definition to refer to costs
those costs related to poultry ``which may include, but are not
production that may be borne by the limited to'' the listed costs
poultry grower, including, but not rather than ``including, but not
limited to, utilities, fuel, water, limited to,'' these costs.
labor, repairs and maintenance, and
liability insurance.
Terms Defined (Sec. 201.2)....... Growout is defined as the process of Revises definition to refer to term
raising and caring for livestock or as poultry growout and exclude
poultry in anticipation of slaughter. livestock.
Growout period is defined as the Revises definition to refer to term
period of time between placement of as poultry growout period and
livestock or poultry at a grower's exclude livestock.
facility and the harvest or delivery
of such animals for slaughter,
during which the feeding and care of
such livestock or poultry are under
the control of the grower.
----------------------------------------------------------------------------------------------------------------
[[Page 83230]]
VII. Comment Analysis
AMS received 504 comments on the proposed rule, some with multiple
signatories. Comments received were generally more supportive of the
proposed rule than opposed. Many commenters generally agreed with the
proposed rule's justification and implementation. These commenters
stated that the proposed rule would be helpful because it would provide
for fairer treatment of growers and enable growers to better
understand, evaluate, and compare contracts among dealers, enhancing
growers' ability to bargain efficiently. Commenters stated further that
the proposed rule would reduce the power of large corporations in the
industry, improve public trust in agriculture, and increase
transparency regarding food products.
Other commenters were generally critical of the proposed rule.
These commenters expressed general disagreement with AMS proposing a
rule at all, arguing the current system is fair and efficient and that
the tournament system rewards growers for efficiency, innovation, and
raising the best birds possible. Several commenters stated the proposed
rule is not fair and would result in a less efficient industry because
it would reward less productive growers, disincentivize hard work, and
add more paperwork.
The public comments are summarized by topic below and include AMS's
responses.
A. Proposed Definitions
AMS proposed to revise Sec. 201.2 containing relevant definitions
by removing the paragraph designations within the section, reorganizing
the definitions alphabetically, and adding definitions for new terms
used in the proposed rule. In addition, to ensure a common
understanding of the use and meaning of certain terms already used in
the regulations and included in the revisions, AMS proposed to
incorporate the statutory definitions for those terms.
Grower Variable Costs
AMS proposed defining grower variable costs as ``those costs
related to poultry production that may be borne by the poultry grower,
including, but not limited to, utilities, fuel, water, labor, repairs
and maintenance, and liability insurance.'' \65\
---------------------------------------------------------------------------
\65\ Liability insurance may be a fixed cost for many growers,
but we include it here because that may not be so in all
circumstances, while the purpose of this rule is to provide enhanced
information to all growers.
---------------------------------------------------------------------------
Comment: Some commenters shared concern that the definition of
grower variable costs creates the impression that it is a regulatory
requirement or expectation that the costs listed therein are to be
borne by the grower, thereby harming growers' ability to negotiate
those terms. Commenters stressed that these costs are sometimes the
subject of negotiation between grower and live poultry dealer, with
some costs being paid by the live poultry dealer.
AMS response: AMS modified the definition of grower variable costs
to replace the words ``including, but not limited to'' with the words
``which may include, but are not limited to.'' The modification in the
definition, in particular the use of the term ``may,'' underscores that
the requirement to provide transparency for any grower costs, including
those listed in the definition, do not create a mandate upon the live
poultry dealer or grower with respect to who bears any of the specific
listed costs. In many, if not most contracts today, based on AMS's
experience, the listed examples would be considered grower variable
costs.\66\ But the rule does not prevent the parties from negotiating
other arrangements, such as the live poultry dealer accepting
responsibility for the payment of those cost items. This approach is
consistent with the rule's general approach of enhancing transparency.
---------------------------------------------------------------------------
\66\ See Jennifer Rhodes, Extension Educator, et al, University
of Maryland, ``Broiler Product Management for Potential and Existing
Grower,'' Tables 1 and 2, available at Poultry Budgets, Enterprise
Budgets, Agricultural and Resource Economics, North Carolina State
University Extension, https://cals.ncsu.edu/are-extension/business-planning-and-operations/enterprise-budgets/poultry-budgets/ (last
accessed April 2023). Also see Dan L. Cunningham and Brian D.
Fairchild, University of Georgia Cooperative Extension, ``Broiler
Production Systems in Georgia Costs and Returns Analysis 2011-
2012,'' Bulletin 1240, and Tomislav Vukina, ``Vertical Integration
and Contracting in the Poultry Sector,'' Journal of Food
Distribution Research (July 2001).
---------------------------------------------------------------------------
AMS considered whether to remove the list of potential variable
costs, as requested by the commenter. AMS rejected that approach
because it poses a risk of complexity or confusion in compliance, as
live poultry dealers may not know which types of grower variable costs
are generally required to be disclosed under most contracts today. AMS
notes that the listing of any particular grower variable cost does not
prevent the parties from contracting for other arrangements regarding
who bears the burden of any particular grower variable costs.
Growout and Growout Period
AMS proposed to define growout as the process of raising and caring
for livestock or poultry in anticipation of slaughter and growout
period as the period of time between placement of livestock or poultry
at a grower's facility and the harvest or delivery of such animals for
slaughter, during which the feeding and care of such livestock or
poultry are under the control of the grower.
Comment: A meat and poultry industry trade association made up of
processors commented that the references to ``livestock or poultry'' in
the proposed definition of growout period may have unintended
consequences across other segments of the protein industry that do not
use tournament pay systems, as the definition of livestock in the Act
includes ``cattle, sheep, swine, horses, mules, or goats.'' The
commenter stated that it is not aware of uses of the tournament system
in the production of these species and AMS has not provided any facts
to suggest that those species have a growout period as the term would
be employed in the poultry industry. The commenter recommended AMS
revise this definition to eliminate ``livestock'' and review all
definitions to avoid unintended consequences for other protein
segments.
AMS response: This final rule modifies the proposed definitions for
growout period and growout to apply only to poultry. The references to
livestock in the proposed definitions were offered to provide a more
generally applicable definition but are not needed at this time and are
therefore removed. To improve clarity, we also changed the proposed
terms growout and growout period in Sec. 201.2 to instead refer to
poultry growout and poultry growout period, respectively.
Housing Specifications
AMS proposed to define housing specifications as a description of--
or a document relating to--a list of equipment, products, systems, and
other technical poultry housing components required by a live poultry
dealer for the production of live poultry.
Comment: A poultry industry trade association commented that the
proposed definition of housing specifications is unnecessarily vague
and lends itself to multiple interpretations. The commenter said there
are endless combinations of equipment, products, systems, and other
technical poultry housing components that could result in dealers
having to organize dozens of housing specifications, adding significant
complexity for the dealer, and creating confusion for the grower. The
commenter stated that because farms are built with the technology in
use at the time, the housing types and technology
[[Page 83231]]
in use generally correlate with the age of the facility.
To simplify the categorization of housing specifications in
Disclosure Documents and settlement sheets, the commenter recommended
that AMS revise the definition to clarify that live poultry dealers are
permitted to devise their own categories of housing specification for
the purposes of the Disclosure Documents and settlement sheets, which
will allow dealers to prepare and present data based on the types of
housing that their growers use to raise birds for them. The commenter
noted, at the least, AMS should revise the definition to narrow the
housing specification to key elements of housing, namely, the type of
ventilation (for example, curtain or tunnel ventilation) and whether
the house is a brood and growout house or only accommodates the growout
stage.
AMS response: AMS does not agree and will not revise the proposed
definition of housing specifications in response to this comment. The
definition does not limit dealers' ability to categorize poultry
housing. Dealers are free to list the minimum or required equipment or
technical specifications that would qualify under a given housing
specification category.
Poultry Grower Ranking System
AMS proposed to define poultry grower ranking system as a system
where the contract between the live poultry dealer and the poultry
grower provides for payment to the poultry grower based upon a
grouping, ranking, or comparison of poultry growers delivering poultry
during a specified period.
Comment: Several commenters argued that the proposed definition of
poultry grower ranking system lacks sufficient flexibility. These
commenters stated that the regulations appear to contemplate only two
contract types--flat payment or a tournament system--and do not
encompass the many forms of contracting in use in today's market, let
alone innovative contracting arrangements.
Comments recommended that AMS revise the definition to exclude from
the scope of the proposed rule poultry grower compensation systems
where there is a fixed base pay, regardless of how any incentive-based
bonus may be calculated. They recommended revising the definition of
poultry grower ranking system to mean ``a system where the contract
between the live poultry dealer and the poultry grower provides for
base payment to the poultry grower based upon a grouping, ranking, or
comparison of poultry growers delivering poultry during a specified
period.''
AMS response: AMS has fully considered the applicability of
``poultry grower ranking system'' to a wide range of possible
compensation systems and intends for the relevant provisions of this
rule governing comparisons to be applied broadly. AMS recognizes that
certain designs of grower comparisons may provide more desirable
outcomes for contracting participants in different circumstances, and
in issuing this final rule, AMS is creating transparency in payment
systems. However, commenters' recommendation would limit the
disclosures of this rule only to those instances of variable base pay,
even when comparison rankings affect performance pay in a manner that,
under current conditions, is opaque and misleading to the grower.
Addressing this widespread deceptive practice is squarely the purpose
of this final rule.
The definition was developed to be consistent with the approach set
forth in current Sec. 201.100(f)--Growing or ranking sheets, that has
been in place since 1989,\67\ and provides transparency to growers who
are paid based on the live poultry dealer's grouping or ranking of
poultry growers delivering poultry during a specified period.
---------------------------------------------------------------------------
\67\ 54 FR 16356, April 24, 1989.
---------------------------------------------------------------------------
AMS does not agree that it is necessary or appropriate to
distinguish between types of ranking systems for the purposes of this
rule. Commentors asserted that fix-based pay systems that included
bonuses for better rankings are distinguishable from systems that have
a variable base pay established by the grower's ranking. Their proposal
would limit the disclosures of this rule to those instances of variable
base pay, even when there are other comparison rankings. In AMS's view,
any comparison of growers is a ranking system because when growers are
compared to each other, the basis for grower payment is changed. No
longer is payment based only upon the intrinsic work of one particular
grower. Instead, payment is based upon a relative outcome between
growers, where similarities or differences between them become
especially important. For example, under any system of grower ranking,
comparative information about inputs may illuminate and magnify
differences where those differences can impact performance and payment.
In particular, AMS rejects the suggested limitation of grower
ranking systems either to the calculation of base-pay-plus-incentive
payment or entirely to base pay. In either circumstance, growers are
exposed to comparisons in the context of performance payments, which
could make up a sizable, if not an overwhelming, portion of their
compensation and be subject to significant variability for reasons
outside of their control or awareness. Regardless of what type of
ranking system is used, growers are entitled to know the reasons behind
payment differences that may relate to inputs or other important
differences affecting the outcome because that information is necessary
to avoid deception for the reasons described throughout this final
rule.
AMS recognizes that payment systems may evolve and that parties may
wish to innovate in payment systems to the extent those systems are
transparent and free of potential deception. Transparency is fully
compatible with such innovation because it encourages a responsible,
accountable form of that innovation. The rule's required disclosures
regarding input differences provide growers with the information they
need to be able to adjust to any input differences that may exist,
including in advance of input delivery and over time when comparing
outcomes of a series of growouts. Accordingly, AMS is not changing the
definition of poultry grower ranking system as proposed based on these
comments. Poultry companies and growers should contact AMS to discuss
questions about compensation systems.
AMS provides an estimate of the value of improved transparency in
the regulatory analysis section.
Other Comments on Definitions
Comment: Several non-profit organizations suggested AMS add several
new definitions to Sec. 201.2. First, the commenters noted that the
proposed rule, as well as current regulations under the Act, appear to
use the term ``facility'' to refer to a poultry grower's poultry houses
collectively, rather than individually. Therefore, they recommended
that AMS add a definition for poultry house to allow for clarity in
circumstances where it needs to refer to individual poultry houses.
Second, the commenters noted that the proposed rule uses the term
``tournament system'' in a manner that appears to be synonymous with
``poultry grower ranking system.'' Therefore, they recommended that AMS
define tournament system to be synonymous with poultry grower ranking
system.
AMS response: This rule applies at the farm level and therefore
does not require specification of a separate term to refer to an
individual poultry house
[[Page 83232]]
beyond that already provided by housing specification. In addition, the
term ``tournament system'' does not appear in the rule text itself.
Therefore, AMS made no changes to the definition of poultry grower
ranking system in the final rule.
B. Applicability
AMS proposed to revise Sec. 201.100(a) to require a live poultry
dealer to provide certain documents to a prospective poultry grower
when the live poultry dealer seeks to establish a poultry growing
arrangement, or to a current poultry grower when a live poultry dealer
seeks to modify an existing poultry growing arrangement. AMS proposed
to apply this Disclosure Document requirement to live poultry dealers
in all segments of the poultry production industry. Poultry is defined
in section 182(6) of the Act to include chickens, turkeys, ducks,
geese, and other domestic fowl. AMS requested comments on whether the
disclosure requirements should apply to all segments of the poultry
production industry, or if the requirements should be limited to
broiler and turkey production.
Comment: Comments received stated that the disclosure requirements
should only apply to contractual agreements within the tournament
system of growing poultry and noted the disclosures are largely meant
for the broiler industry, where many of the complaints arise.
An association representing the turkey industry noted the
provisions of the proposed rule were not based on substantial research
into the turkey industry and asserted many of the provisions would be
difficult or impossible for turkey companies to implement, citing
differences in turkey growing cycles, flock densities, bird gender
distributions, and other factors dissimilar to those involved in
broiler production.
AMS response: As discussed previously, AMS subject matter experts
analyzed turkey production contracts from across the country and found
more variability than in broiler contracts. The variability reflects
the biological differences found among turkey breeds and longer
placement times of turkeys with growers that can impact payments to
producers. AMS has not received many complaints from turkey growers.
Similarly, other (non-broiler chicken) poultry growers have not
expressed concerns regarding practices in their industry. AMS
determined it is appropriate at this time to limit the scope of the
disclosure requirements in this rule to apply only to broiler
production under a poultry growing arrangement.
This final rule contains a new section Sec. 201.102 containing
these disclosure provisions and specifying that they apply exclusively
to live poultry dealers engaged in the production of broilers, while
maintaining the current requirements at Sec. 201.100, which continue
to apply to all live poultry dealers. This rule also makes conforming
changes to Sec. 201.2 to define broiler as ``any chicken raised for
meat production,'' broiler grower as ``a poultry grower engaged in the
production of broilers,'' broiler growing arrangement as ``a poultry
growing arrangement pertaining to the production of broilers,'' and
prospective poultry grower as ``a person or entity with whom the live
poultry dealer is considering entering into a broiler growing
arrangement.'' This final rule further clarifies that the right of
current or prospective poultry growers to discuss the terms of a
poultry growing arrangement offer applies to the Disclosure Document in
circumstances that require dealers to provide this document. All
poultry growers are protected by the Act's prohibitions on deceptive
practices, and AMS has the authority to address instances or
circumstances where poultry growers are not provided sufficient
information to make informed decisions on poultry growing arrangements
or changes thereto, including additional capital investments.
Because this final rule limits all the new disclosure requirements
to broiler production, this rule modifies the proposed requirement for
live poultry dealers to include in their contracts the minimum number
of flock placements to be delivered to growers annually and the minimum
stocking density of those placements, applying it exclusively to live
poultry dealers engaged in the production of broilers. This final rule
also changes the proposed requirement in Sec. 201.214 to apply
exclusively to live poultry dealers engaged in the production of
broilers who use a poultry grower ranking system to calculate grower
payments. AMS retains the current grouping or ranking sheet
requirements for all live poultry dealers in Sec. 201.100(f) of the
current rule.
Comment: Several commenters said the rule should apply to pullet
and breeder hen growers as well as broiler growers because pullet and
breeder hen production is also controlled by live poultry dealers.
AMS response: Although live poultry dealers may control pullet and
breeder hen production, those birds are typically raised for egg and
chick production and not for slaughter purposes. The Act's poultry
provisions cover only poultry raised for slaughter. Because there is no
provision for doing so under the Act, AMS is not making this rule
applicable to pullet and breeder hen production.
C. Disclosure Document and Letter of Intent
AMS proposed to amend Sec. 201.100 to revise the list of
disclosures and information live poultry dealers must provide to
poultry growers and sellers with whom dealers make poultry growing
arrangements. Currently, when a live poultry dealer offers an
arrangement with a poultry grower, the dealer must furnish a true
written copy of the growing arrangement. In the proposed rule, AMS
proposed to require a live poultry dealer who seeks to establish a new
growing arrangement; renew, revise, or replace an existing arrangement;
or enter an arrangement with a poultry grower or prospective poultry
grower that will require original capital investment to also provide a
Disclosure Document that contains specific information. When the
arrangement requires an original capital investment or modifications to
existing housing specifications that could require the poultry grower
to make an additional capital investment, AMS proposed to require the
dealer to provide a letter of intent that can be relied upon by the
grower to obtain additional capital investment.
Utility of Information Provided
Comment: AMS asked whether the information in the proposed rule's
required disclosures would help poultry growers make informed business
decisions and better understand poultry growing arrangements, or
otherwise better address deceptive practices faced by poultry growers.
Most commenters supported requiring the Disclosure Document information
as proposed, saying the information will help poultry growers make more
informed business decisions and reduce risks of deception. However,
some commenters said the rule will be costly and will confuse poultry
growers. These commenters stated that relevant information is already
provided to growers and the additional proposed disclosures would not
be helpful.
AMS response: AMS does not agree with the comments received in
opposition to the proposed information disclosures. Requirements for
disclosing information to broilers are not new to live poultry dealers.
The current regulations at Sec. 201.100 already require disclosures
from live poultry dealers.
[[Page 83233]]
This final rule expands the information that live poultry dealers are
required to provide to boiler growers. AMS's experience in reviewing
live poultry dealers' records suggest that live poultry dealers already
keep records of most of the information that the final rule would
require them to disclose. Although the final rule does impose
additional costs on live poultry dealers, the additional costs
associated with the disclosures consist primarily of assembling the
information and distributing it to growers. AMS expects that the
additional costs that live poultry dealers would face will amount to
$2.43 million in the first year and $6.04 million over ten years.
AMS expects that the benefits or utility of the information
disclosed to broiler growers will outweigh the costs of producing and
distributing the information. AMS estimated the benefits to broiler
growers from reduced revenue uncertainty to be $2.7 million in the
first year and $26.9 million over ten years. Comments received from
growers indicated that with additional information, they might have
made different business decisions with regard to poultry growing
arrangements.\68\ Further, the information provided in the disclosures
should not confuse those currently in the business of growing broilers,
provided it is explained in clear language. Prospective broiler growers
are expected to benefit from the disclosed information as they more
fully appreciate and consider aspects of the business that need their
careful attention. Accordingly, AMS made no changes to the rule as
proposed based on these comments.
---------------------------------------------------------------------------
\68\ Comments on Proposed Rule: Transparency in Poultry Grower
Contracting and Tournaments, (Aug. 2022), https://www.regulations.gov/comment/AMS-FTPP-21-0044-0479 (See, for
instance, Background section in this rulemaking, which cites
comments from numerous growers about how they lacked important
information to make informed growing decisions and about how.
required disclosure of such information would greatly benefit them.
Moreover, integrators typically already collect such information for
their own use without disclosing it to growers.).
---------------------------------------------------------------------------
Partial Exemption for Small Dealers
In proposed Sec. 201.100(e)--Small live poultry dealer financial
disclosures--AMS proposed to exempt live poultry dealers who, in
conjunction with any parent and subsidiary companies, slaughter fewer
than 2 million live pounds of poultry weekly (104 million pounds
annually) from the requirement to provide the Disclosure Document under
proposed Sec. 201.100(a)(1). As proposed, the exemption would apply
only if the new, renewed, or replacement contract offered by one of
these dealers does not include revisions to existing housing
specifications that would require the grower to make new or additional
capital investments. AMS requested comments on the proposed partial
exemption, including whether AMS should consider other approaches, such
as different thresholds, for applying the small live poultry dealer
partial exemption.
Comment: Some commenters said they opposed the proposed rule's
partial exemption from the disclosure requirements for live poultry
dealers that slaughter fewer than 2 million live pounds of poultry
weekly because it would exempt almost half of the live poultry dealer
industry from these requirements, arguing that growers and flocks
involved with small dealers could suffer the same disadvantages as
others in the industry without receiving the benefits of the rule.
These commenters noted that, according to AMS's analysis, the exemption
would apply to 47 out of 89 live poultry dealers.
AMS response: The total production volume exempted, rather than the
number of live poultry dealers, provides a better picture of the extent
to which portions of the industry will be affected by the exemption.
The exemption pertains to only 0.20% of total broiler production volume
and 2.0% of total broiler contracts, as calculated for broiler firms
filing an annual report with PSD in 2021.\69\ In Sec. 201.102(e) of
the final rule, AMS maintains the partial exemption for small live
poultry dealers but revises the language originally proposed to clarify
that the partial exemption applies to a live poultry dealer engaged in
the production of broilers that, together with all companies controlled
by or under common control with the live poultry dealer, slaughters
fewer than 2 million live pounds of broilers weekly (104 million pounds
annually).
---------------------------------------------------------------------------
\69\ All live poultry dealers are required to annually file PSD
form 3002 ``Annual Report of Live Poultry Dealers,'' OMB control
number 0581-0308. The annual report form is available to the public
at https://www.ams.usda.gov/sites/default/files/media/PSP3002.pdf.
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Comment: A meat industry trade association said the partial
exemption for small live poultry dealers would result in a non-level
playing field based on a live poultry dealer's size. A poultry industry
trade association asserted if the need for the rule is valid, then no
live poultry dealer should be exempt. This commenter expressed concern
that the exemption could result in poultry growers leaving larger live
poultry dealers that comply with the rule to join smaller live poultry
dealers that do not need to comply. One commenter representing the
turkey sector indicated it had no objection to this provision. One
poultry grower commenter said small live poultry dealers should not be
exempt, but that there should be a revenue threshold tailored to small
dealers because of the expense of recordkeeping.
AMS response: In the spirit of the Regulatory Flexibility Act, AMS
is attempting to fit regulatory and informational requirements to the
scale of the businesses, organizations, and governmental jurisdictions
subject to regulation.'' AMS intends for the exemption to reflect the
fact that deceptive practices are less likely to be observed among
smaller live poultry dealer operations in AMS experience. The exemption
is also expected to ease the regulatory compliance burden on live
poultry dealers with lower production volume, as described in the
previous comment response. Based on AMS's experience, smaller operators
tend not to compete directly with the larger live poultry dealers,
often have smaller grower pools, generally dictate less complicated or
expensive housing requirements, and use different business models.\70\
These smaller dealers tend to fall into two types. In the first type,
these smaller operators rely on growers whose facilities have been used
in production for many years and who are not usually required to make
changes. The growout services they require of their growers are
commonly more intermittent. In the other type, specialized operators--
often start-ups or companies that focus on certain high-end products--
serve discrete markets where dealers often have higher profit margins,
which reduces the need for ongoing grower financial investment on the
part of growers to achieve greater efficiency, and as a result rely
less on certain poultry growout arrangements that have been associated
with the types of deception addressed by this rule. Neither commonly
employs contracts or practices that require growers to invest in
particularized housing specifications--a key reason why the small
operator exemption does not include those who do. Also, neither tends
to deploy the degree of dealer discretion in the provision of inputs or
other operational matters common to larger, more commoditized
operations.
[[Page 83234]]
These simpler, more straightforward growing arrangements have less
grower payment variability and fewer financial and other risks relating
to dealer discretion in the operation of the poultry growing
arrangement. As a result of the differences in these markets, growers
for these smaller live poultry dealers tend to face reduced risk of
deception. Current market realities would not, at present, seem to
justify the effort and expense to develop the Disclosure Document
required of larger business entities.
---------------------------------------------------------------------------
\70\ For example, a small organic chicken company started in
Virginia using old growout houses that were no longer suitable for
use in larger operations. See Andrew Jenner, ``In Virginia, an
organic chicken empire is growing--using old barns big poultry
companies left empty,'' The Counter, (March 9, 2020) available at
https://thecounter.org/organic-chicken-contract-farming-shenandoah-valley/ (last accessed April 2023).
---------------------------------------------------------------------------
To ensure that this smaller business exception captures only the
two types of smaller live poultry dealers discussed above, this rule
only exempts smaller live poultry dealers from disclosure where no
capital investments are contemplated. Based on AMS's experience, the
need for original or additional capital investment on the part of the
grower suggests the presence of the more intensive performance-based
economic pressure from the live poultry dealer on the grower, which in
turn characterizes a market where the dealer will exert greater
discretion in the operation of the contract and where grower outcomes
are more variable due to factors outside of their control and
knowledge. The presence of capital investments also raise the risks to
growers from any deception that may arise by subjecting growers to debt
burdens and making it more difficult for them to change poultry-
processing companies. Under the regulation, smaller live poultry
dealers face the same disclosure obligations as larger ones when
dealing with a new poultry growing arrangement that will require an
original capital investment or modifications to existing housing
specifications that would reasonably require an additional capital
investment.
AMS rejects the argument that the exemption could result in poultry
growers leaving larger live poultry dealers that comply with the rule
to join smaller live poultry dealers that do not need to comply. The
commenter does not provide evidence that this would occur in markets
that, in AMS's experience, are structured differently and respond to
different incentives. To the extent it did occur in one or more places,
some dealers may also grow to become covered by the rule. Regardless,
AMS will remain attentive to potential instances of deceptive practices
across the poultry industry.
Changes to Requirements
Comment: In the proposed rule, AMS asked what items might be added
to or deleted from the Disclosure Document. Several industry commenters
said AMS should not require disclosures for any item that would be
included in the poultry grower contract arrangement, as providing
information about these items in the Disclosure Document as well would
be an unnecessary burden. A commenter noted the live poultry dealer's
name, type of business, organization, principal business address,
telephone number, primary internet website address, and the length of
the term of the arrangement are already provided in dealer contracts.
Several non-profit organizations said AMS should require disclosure of
all possible variables that could affect a contract grower's settlement
pay, along with whether and how the tournament ranking formula
compensates for such variables. These commenters also said AMS should
require additional disclosures for live poultry dealers proposing or
requiring modification to existing infrastructure. A farm bureau
commenter said AMS should add language preventing live poultry dealers
from requiring name-brand equipment for an equipment mandate when
poultry housing is modified, unless the live poultry dealer can
demonstrate the mandate is scientifically justified.
AMS response: Together, the Disclosure Document and production
agreement will ensure growers are better informed of their obligations
and risks. The Disclosure Document refers to and highlights information
also contained in the production agreement to emphasize selected
important information contained there. Requiring name and contact
information assures the grower the Disclosure Documents pertain to the
poultry growing arrangement in question, highlights points of contact
and their contact information, and underscores certain basic
information in the contract, such as its length of term. Providing such
information, which is readily available to the live poultry dealer and
already included in the contract itself, is not an overly burdensome
requirement.
AMS recognizes that the Disclosure Document cannot list all
potential variables in poultry production nor properly assess the
industry burden of disclosing how the tournament formula compensates
for each of those variables. However, AMS has targeted the requirements
to disclosure of variables most frequently cited by industry commenters
and what the agency understands to be most useful to growers to assess
their risks, in the context of the dependent nature of their
contractual relationship with live poultry dealers. This includes
disclosures at tournament settlement of information regarding inputs
and housing specifications to enable growers to assess the relationship
between inputs and housing specifications. AMS intends to monitor the
market and may examine in the future whether any additional information
may be useful to help growers understand what factors affect tournament
outcomes, whether located in the Disclosure Document or in settlement
disclosures.
This final rule does not require additional disclosures beyond the
requirements of the Disclosure Document for live poultry dealers
proposing or requiring modification to existing infrastructure. Nor are
we addressing whether requiring name brand equipment without scientific
justification is permissible or not, as that would fall outside the
scope of this transparency rule. However, AMS is sensitive to grower
concerns in these areas and notes that equipment limitations are
subject to review under additional capital investment criteria in
current Sec. 201.216. Additionally, AMS is considering future
rulemaking to address capital improvement programs in poultry growing
contracts, as explored in the Advanced Notice of Proposed Rulemaking
``Poultry Growing Tournament Systems: Fairness and Related Concerns.''
(See 87 FR 34814; June 8, 2022.) Accordingly, AMS is making no changes
to this transparency rule as proposed based on these comments.
In related comments, grower groups expressed a desire for a
disclosure that communicates information about the rate of grower
turnover, or grower churn, for live poultry dealers. AMS agrees that
knowing the dealer's recent history with respect to grower churn would
give current and prospective growers a decision-useful data point with
which to evaluate the stability of the live poultry dealer's grower
roster, which may serve as an imperfect but adequate proxy for grower
satisfaction. Some dealers may be prone to engage in practices that
growers broadly dislike, creating dissension between growers and
dealers, and often resulting in contract termination and/or litigation
between the parties, which is reflected in the turnover rate.
Accordingly, in response to comments on the proposed rule, we modified
the proposal by adding the requirement in Sec. 201.102(c)(5) of the
final rule that dealers must disclose average annual broiler grower
turnover rates for the previous calendar year and the 5 previous
calendar years at a company level and a local complex level.
[[Page 83235]]
Burdens to Dealers
Comment: In the proposed rule, AMS asked what burdens or challenges
dealers could face in collecting and disseminating information to
include in the Disclosure Document and whether these burdens would
require dealers to modify their business model. Multiple poultry
industry commenters said live poultry dealers would need to develop new
recordkeeping systems, hire additional employees, and implement
archival systems to maintain the required records under the rule,
leading to increased administrative costs. Commenters argued these
burdens will make the U.S. poultry industry less competitive in the
global marketplace. An academic institution said large poultry
companies may choose to increase prices for consumers to recoup
administrative costs associated with the rule but noted the large
poultry companies have benefited from their market power and have been
making record profits despite global disruptions.
AMS response: AMS does not agree that the recordkeeping required
will lead to meaningfully increased administrative costs. Further, AMS
does not expect any cost increases from the rule, including
recordkeeping costs, to impact consumer chicken prices because the
increases in costs are immeasurably small compared to industry
revenues. AMS notes in the Regulatory Impact Analysis that Chicken
sales in the U.S. for 2019 were approximately $58.6 billion and that
the total quantified cost of Sec. Sec. 201.102 and 201.104, including
recordkeeping costs is estimated at $3.4 million when it is greatest in
the first year, or 0.0006 percent of revenues.
In USDA's extensive experience with live poultry dealer business
practices indicates most of this information is already routinely
collected by live poultry dealers. The information contained in the
Disclosure Document is designed to aid poultry growers in making
business decisions by allowing growers to better understand, evaluate,
and compare contracts. Information relating to performance and payments
of all growers at a particular complex is useful to growers in reducing
deceptive practices and allows growers to make more informed business
decisions.
Timeline To Provide Disclosure Document
Comment: AMS proposed in Sec. 201.100(a)(1) to require live
poultry dealers to provide the Disclosure Document to current or
prospective poultry growers at least 7 calendar days before executing a
poultry growing arrangement in several circumstances. These disclosure
requirements apply when the live poultry dealer seeks to renew, revise,
or replace an existing arrangement or to establish a new arrangement
that does not contemplate modifications to the existing housing
specifications. Several commenters advocated for lengthening this
timeline. These commenters said the 7-day timeline does not give
growers enough time to review the contract and consult as needed with
relevant entities. One of these commenters suggested AMS implement a
14-day timeline, while another suggested a 30-day timeline.
AMS response: AMS underscores the importance of giving growers the
opportunity to meaningfully review and understand the disclosures, as
that is an essential part of achieving the purposes of the rule to
reduce deception and empower growers to make effective decisions. At
the same time, we recognize the importance to both growers and dealers
of keeping existing poultry houses in production. The time-based
requirement of Sec. 201.102(a)(1) only applies when capital investment
is not contemplated; other situations where required investment would
expose growers to new risks have different requirements due to the
necessary lending and investment process and those timelines (which
commonly occur over several months and are more controlled by the
grower's decisions around any lending and construction). In most cases,
growers considering a new, renewed, revised, or replacement poultry
growing arrangement that does not contemplate modifications to existing
poultry housing already have a relationship with the live poultry
dealer and know whether or not they wish to continue that relationship.
AMS agrees with the comments from the grower and advocacy sectors
that said at least 14 calendar days in advance of the broiler growing
arrangement's execution would provide a more appropriate length of time
for some growers to adequately review and act upon the information
provided in the documents. At the same time, AMS recognizes that
growers in some circumstances may be under pressure by dealers to
execute a contract without fully considering its contents and
implications. For instance, AMS is aware that some dealers currently
provide only 3 business days for growers to review a contract.
Furthermore, where a grower may be switching dealers without a capital
investment, dialogue can be expected to be ongoing. In addition, sec.
208 of the Act gives poultry growers 3 business days after a poultry
growing arrangement is executed to cancel the arrangement.
AMS also recognizes that broiler growers have an interest in
continuity of production, and does not wish to inadvertently insert
unnecessary time delays into the grower's planning process during
contracting, in particular as this provision exclusively addresses the
circumstance where the grower is not contemplating modifications to the
housing specification of the grow house. Lengthy waiting periods as
suggested by some commenters may result in delayed placements and idle
farms, and may also expose both dealers and growers to other financial
risks relating to changing economic circumstances.
The final rule seeks to maximize the grower's ability to determine
the length of time necessary to review the documents. It provides a of
full 14 calendar days of notice unless the grower elects to waive 7
calendar days of the period. It also retains the 7-calendar-day minimum
review period to mitigate the potential for coercive behavior. Growers
expressed that they need more time to review the disclosure, which is a
valid concern in some situations, but we are concerned that the
additional time might prevent other growers from receiving timely
placements in other situations, while the default is now a 14-day
period for disclosure, we are allowing growers to elect to reduce that
period to 7 calendar days for their convenience. Because we think live
poultry dealers may apply undue pressure if the rule permitted a period
of less than 7 calendar days, AMS is not permitting growers to waive
notice entirely. Accordingly, this final rule revises Sec.
201.102(a)(1) to require that live poultry dealers provide growers with
the required documents at least 14 calendar days before the live
poultry dealer executes the broiler growing arrangement, provided that
the grower may waive up to 7 calendar days of that time period.
Comment: A poultry industry trade association said AMS should
require live poultry dealers to furnish the Disclosure Document at the
initial signing of a poultry growing arrangement, and then on a
periodic basis, such as every year.
AMS response: AMS designed the proposed rule to specifically
prevent deception at the time of contracting and thus intends for
disclosure information to be tied to the production contract. That is,
a new disclosure is required whenever production contracts change,
without regard to how much time has passed since any prior disclosures.
This
[[Page 83236]]
gives the grower a chance to evaluate dealer disclosures in connection
with the new, renewed, or revised contract before taking action on it.
Requiring dealers to provide the Disclosure Document on a periodic
schedule, regardless of whether changes are made to an existing
contract, would be unnecessarily burdensome to dealers. Therefore, in
the final rule, AMS maintains the requirement for live poultry dealers
to furnish the Disclosure Document whenever production contracts change
rather than on a periodic basis.
Comment: A poultry industry trade association said AMS should
provide additional clarity on how, and in what timeframe, live poultry
dealers should communicate changes in disclosure information to
growers. For example, this commenter asked whether a change to the
placement or stocking density resulting from disease, weather, or
changed economic demand would require the live poultry dealer to
provide a new Disclosure Document and what the required timeframe would
be for providing the document.
AMS response: AMS requires that live poultry dealers provide a new
Disclosure Document when a live poultry dealer seeks to renew, revise,
or replace an existing broiler growing arrangement, or to establish a
new broiler growing arrangement. This is important for providing
growers with the information they need because it ties disclosure
requirements to the production contract. As dealers must include
placements and densities in the contracts, any changes to these terms
would necessitate changes to the contracts, and thus the provision of a
new Disclosure Document. The provision of such information up front is
important for prospective growers, and for current growers that may be
making a change based on a new housing specification, to understand,
evaluate, and compare contracts. Updating disclosures when there are
changes in the production contract provides similar protections for
growers when contracts may change. To the extent that growers may not
wish to accept the contract, for example, where they may consider
growing for another live poultry dealer, the additional transparency at
those times is useful. Additionally, while growers may not, as a
practical matter, have a choice regarding certain changes to ongoing
poultry production contracts, the additional transparency provided by
the disclosures will enable growers to better plan their management of
those contracts.\71\
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\71\ See https://www.ftc.gov/news-events/news/press-releases/2022/09/ftc-chair-lina-m-khan-files-comment-supporting-proposed-usda-protections-poultry-farmers.
---------------------------------------------------------------------------
Additional Advisories
Comment: In response to AMS's request for information regarding
whether additional changes to the Disclosure Document would be
appropriate, several non-profit organizations said AMS should require
live poultry dealers that revise a signed contract to compensate
poultry growers if the revisions lead to losses for the growers. The
commenters said the point of the disclosures is to provide transparency
about the arrangement; therefore, any changes to the arrangement at the
expense of the poultry grower should be compensated or considered
fraudulent.
AMS response: The scope of this rule is transparency in agreements
between live poultry dealers and poultry growers with whom they
contract. AMS recognizes the issue raised by the commenters is a
concern because growers rely upon the contract terms when entering the
agreement, and it is problematic if subsequent revisions result in
financial losses that presumably would not have occurred under the
original terms. However, the remedy proposed by the commenters is not
within the scope of this rule. If a live poultry dealer deceives a
grower through a ``bait and switch'' agreement as described, remedies
may exist through enforcement by USDA and DOJ, or in private actions by
the grower in Federal or state court. Therefore, AMS made no changes to
the rule as proposed based on these comments.
Readability of Disclosure Document and Provision in Additional
Languages
Comment: In the proposed rule, AMS asked whether the wording of the
Disclosure Document was clear and what changes could be made to improve
clarity. Several groups representing poultry growers said AMS should
ensure the Disclosure Document and other disclosures are in plain
language and understandable to a wide range of poultry growers. They
said the language should also be unambiguous to avoid discrepancies in
interpretation between the agency and other regulators, the courts, and
live poultry dealers.
AMS also asked whether there are circumstances in which live
poultry dealers should be required to provide the Disclosure Document
in a language other than English. Commenters representing both poultry
growers and live poultry dealers supported providing disclosures in the
preferred language of poultry growers who are not native speakers of
English. A commenter said the grower or prospective grower should have
the right to request that the dealer provide the Disclosure Document in
their primary language and that all time limits be tolled until the
dealer provides an adequate translation, noting the burden on non-
native English speakers to navigate the arrangement in English is
significantly greater than the burden on a dealer to provide the
information in the grower's language. Commenters noted the substantial
number of farmers who speak languages other than English and stressed
the importance of making sure language barriers do not prevent poultry
growers from fully understanding the potential costs and benefits of a
poultry growing arrangement. In addition, several commenters
recommended that AMS provide educational outreach to non-English-
speaking communities in their native languages.
AMS response: This rule is intended to promote transparency in
poultry production contracting and give poultry growers and prospective
poultry growers relevant information with which to make more informed
business decisions. For the disclosure information to have value and be
of use to a poultry grower, the poultry grower must have basic
comprehension of the information's meaning so that the provision of
this information can reduce the potential for deception. Accordingly,
in response to comments, AMS added Sec. 201.102(g)(3), which requires
live poultry dealers to present Disclosure Document information
clearly, concisely, and understandably for growers. More generally,
standard plain language practice is to write informational materials in
plain, easy to understand language appropriate for the subject and for
the intended audience. We expect dealers to ensure that growers can
easily understand the disclosures, and in our examinations may test
that to determine whether dealers are complying with Sec.
201.102(g)(3). Further, in response to comments, AMS added a
requirement in Sec. 201.102(g)(4) that in the event a prospective or
current broiler grower notifies the live poultry dealer that they have
limited proficiency in the disclosure's written language, or in the
event the dealer is already aware of such limited proficiency, the live
poultry dealer must make reasonable efforts to assist the grower in
translating the Disclosure Document at least 14 calendar days before
the live poultry
[[Page 83237]]
dealer executes the broiler growing arrangement, provided that the
grower may waive up to 7 calendar days of that time period.\72\
---------------------------------------------------------------------------
\72\ As noted previously, Pew Research Center studies show that
the English proficiency of the Hmong population in the U.S. in 2019
was only 68% and among foreign born Hmong, English proficiency is
just 43%. Abby Budimen, ``Hmong in the U.S. Fact Sheet,'' Pew
Research Center, available at https://www.pewresearch.org/social-trends/fact-sheet/asian-americans-hmong-in-the-u-s/ (last accessed
April 2023).
---------------------------------------------------------------------------
As noted by commenters, non-English speaking growers, including
U.S. natives and immigrants, have played important roles in the poultry
growing market in multiple localities. Grower groups have noted
concerns over many years regarding non-English speaking growers'
ability to understand and evaluate their contracts and the risks they
are taking in poultry growing.\73\ The intention of this rule is to
assist all broiler growers in understanding the information about their
poultry growing arrangement. This includes providing the information to
growers in a language with which they are familiar. Under this final
rule, the live poultry dealer must make reasonable efforts to ensure
that growers are aware of their right to request translation
assistance, and to assist the grower in translating the Disclosure
Document at least 14 calendar days before the live poultry dealer
executes the broiler growing arrangement (provided that the grower may
waive up to 7 calendar days of that time period). The timing aligns
with the requirements on the live poultry dealer under Sec. 201.102(a)
to provide the contract and Disclosure Document to the grower.
Reasonable efforts include but are not limited to providing current
contact information for professional translation service providers,
trade associations with translator resources, relevant community
groups, or any other person or organization that provides translation
services in the broiler grower's geographic area. A live poultry dealer
may not restrict a broiler grower or prospective broiler grower from
discussing or sharing the Disclosure Document for purposes of
translation with a person or organization that provides language
translation services. Live poultry dealers, as parties regularly
engaged in executing poultry growing arrangements, can be expected to
be able to identify for growers affordable translation services in a
timely manner, which will assist the grower in obtaining any necessary
translation services quickly.
---------------------------------------------------------------------------
\73\ Jess Anna Spier, ``Hmong Farmers: In the Market and on the
Move,'' (January 1, 2007) Farmers Legal Action Group, available at
https://www.flaginc.org/wp-content/uploads/2013/03/CLE_JAS.pdf last
accessed 04/06/2023.
---------------------------------------------------------------------------
AMS is requiring that live poultry dealers take reasonable efforts
to ensure that growers are made aware of their right to request
translation assistance so that growers can reasonably access the
assistance with limited risks of prejudice or discrimination. AMS is
not requiring dealers to provide a translation because it would be
costly and could deter poultry companies from working with non-English
speaking growers. Instead, the requirement to assist growers in
obtaining translation services is a more cost-effective and flexible
approach that conforms with existing regulatory requirements that
protect growers' ability to access other services, such as accounting,
financial, and legal advisors, that growers may engage to meet their
needs in reviewing what can be multi-hundred-thousand or million-dollar
investments and business risks. Accordingly, to ensure grower access to
those services, Sec. 201.102(g)(4) prohibits any restriction on
growers' ability to share the documentation with translation service
providers. Furthermore, nothing in the rule prevents companies from
providing a translation provided it is complete, accurate, and not
misleading. Poultry dealers are strongly encouraged to do so.
To preserve the minimum time period for grower review, AMS's
requirement that live poultry dealers assist growers with accessing
translation services must occur 14 calendar days before executing the
poultry growing arrangement (provided that the grower may waive up to 7
calendar days of that time period). AMS has aligned the translation
timing with the general requirement that the Disclosure Document be
provided 14 calendar days before executing the poultry arrangement to
minimize complexity in the rule, provided that the grower may waive up
to 7 calendar days of that time period. As discussed elsewhere in this
final rule, the 14-day timing requirement only applies where no
additional capital investment is being made. Where additional capital
investments are being made the Disclosure Document must be delivered
with the housing specification, which occurs before the capital
investment. As noted elsewhere in this final rule, circumstances where
no capital investments are being made tend to reflect continuity and an
established relationship between the grower and the live poultry
dealer, or circumstances where a grower is switching without capital
investment. In either case, the dealer and grower can be expected to be
in ongoing dialogue in the run up to the period before review, which
should allow for more flexible timing by both parties.
The suggestion that AMS provide educational outreach to non-
English-speaking communities in their native languages is noted, and
while a provision for outreach is not included in this rule, AMS will
publish educational materials online in multiple commonly spoken
languages to provide a basic level of outreach, in addition to
exploring more opportunities to provide additional educational
outreach.
Other Improvements to Proposed Disclosure Regime
Comment: In the proposed rule, AMS invited comments on what else
USDA can do to improve the proposed disclosure regime, including
whether AMS should provide more information about the scope of the
definition of deception under the Act. Several non-profit organizations
suggested AMS establish a definition of deception to give growers,
regulated entities, and courts a clear understanding of the intent of
the rule.
AMS response: AMS is making no change based on comments received.
While the particular facts and circumstances in any individual case
will determine the application of the prohibition on deceptive
practices under the Act, well- established principles of deceptive
practices under the Act squarely cover the information required to be
disclosed in this rule. Taking the formulation set forth in the 1983
FTC Policy Statement on Deception, deception would require that the
representation, omission, or practice be likely to mislead the grower,
from the perspective of the grower acting reasonably in the
circumstances, and be likely to affect their conduct or decision with
regard to the poultry growing arrangement.\74\ AMS has crafted this
rule to meet that standard in the prevention of deception: to provide
information that is important to reasonable poultry growers' decisions
relating to contracting and the operation of their contracts and that
addresses representations, omissions, and practices that are likely to
mislead growers. Accordingly, AMS finds no need to further define
deception in this rule.
---------------------------------------------------------------------------
\74\ FTC Policy Statement on Deception, Oct. 14, 1983 (Appended
to Cliffdale Associates, Inc., 103 F.T.C. 110, 174 (1984)),
available at https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf.
---------------------------------------------------------------------------
AMS notes, also, that additional concepts, formulations, or
applications of deception may be presented in a separate rulemaking.
Other deceptive
[[Page 83238]]
practices are outside the scope of this disclosure-based rulemaking.
D. Disclosure Document Advisories
In proposed Sec. 201.100(b)(6), (7), and (8), AMS proposed the
Disclosure Document contain specific verbatim advisories. The
advisories would summarize provisions of the poultry grower's poultry
growing arrangement, the grower's right to carefully read the
Disclosure Document and all accompanying material, and the grower's
right to share the document with certain others for counsel. The
Disclosure Document advisories would describe the requirement that the
live poultry dealer furnish a copy of the Disclosure Document and
growing arrangement a minimum of 14 calendar days before the dealer
executes the growing arrangement, provided that the grower may waive up
to 7 calendar days of that time period. When the live poultry dealer
seeks to offer or impose new or additional housing specifications that
could lead the poultry grower to make a capital investment, the
advisories would describe the requirement to provide the Disclosure
Document simultaneously with a copy of the growing arrangement, any new
or modified housing specifications that require original or additional
capital investment, and a letter of intent. The advisories would also
include a provision explaining that the information is not verified by
USDA, and that false or misleading statements or material omissions by
the live poultry dealer in the disclosure could constitute a violation
of Federal law, State law, or both. Inaccurate information provided in
disclosure to growers, as well as other bait-and-switch tactics, such
as making a material policy change but not through a new or revised
contract, would be covered under this section. This is designed to help
growers understand that conduct which violates the rule is a violation
of sec. 202(a) of the Act and may result in a notice of violation from
USDA or prosecution by the Department of Justice and that, furthermore,
growers may be able to tap additional remedies for misrepresentations
in these disclosures under the Act and other laws as well.
Statement of Grower's Rights
Comment: Several non-profit organizations suggested AMS should add
a requirement that dealers provide in the Disclosure Document USDA
contact information that would allow current or prospective poultry
growers to obtain further guidance regarding their rights and
protections.
AMS response: AMS agrees with this comment, and has amended the
proposed requirements for the Disclosure Document to include the
Packers and Stockyard Division hotline number, along with the address
for the AMS complaint portal, which was included in the proposed rule.
AMS has additionally included a reference to the AMS website where live
poultry dealers and growers may access further information about rights
and responsibilities under the Act. Providing this contact information
to growers will signal AMS's intent to enforce the rule and further
facilitate growers' ability to contact USDA regarding potential
violations.
Comment: AMS received several comments about the provision allowing
poultry growers to discuss their arrangements with business associates.
A non-profit organization suggested that the rule should ensure a
grower's right to speak freely about their contracts. Several
commenters said the rule should increase transparency by explicitly
permitting poultry growers to discuss poultry growing arrangement
offers and Disclosure Documents with anyone.
AMS response: AMS continues to agree growers must be able to
consult with the entities listed in Sec. 201.100(b) about entering
into, renewing, and operating under such contracts because those
parties are essential for assisting growers in appreciating the legal,
financial, and operational risks that they may face. Moreover, the
Disclosure Documents provide critical information that is core to their
ability to provide that assistance. However, adding to the particular
entities listed in Sec. 201.100(b) is outside the scope of this
rulemaking. AMS will monitor whether non-disclosure requirements are
impeding the ability of growers to make the most efficient use of the
Disclosure Documents, including whether such non-disclosure agreements
impede the ability of growers to seek and obtain better offers from
competing live poultry dealers. Accordingly, AMS will monitor and
evaluate whether rulemaking to expand the entities listed in Sec.
201.100(b) is needed, but made no changes to the rule as proposed based
on these comments.
Comment: Several live poultry dealers said the verbatim advisories
required by the proposed rule on the right to obtain counsel on a
contract from certain trusted advisors and the right to seek redress
from AMS for violations of the Act are unnecessary because they
distract from the clear terms of the contract and do not require
contractual provisions to be effective. These commenters suggested AMS
engage in targeted educational outreach, work with State agriculture
extension services, and coordinate with other industry stakeholders as
an alternative to these advisories.
AMS Response: Based on AMS's experience, some growers may not be
aware of their rights under the Act or may be confused, intimidated, or
misled about asserting those rights where contracts include
confidentiality clauses. The mandated disclosures promote transparency
and allow growers to better understand, evaluate, and compare contracts
among dealers. This minimizes the risk of deception in the contracting
process by ensuring growers know they have the right to understand and
evaluate offered contracts by seeking business, legal, and financial
counsel from the entities listed in Sec. 201.100(b). It is true that
certain information provided by State extension services, USDA
resources, and other poultry growers under contract with the same live
poultry dealer can help growers assess the feasibility and operation of
new or revised poultry growing arrangements. Grower commenters at
listening sessions, however--in response to rulemaking proposals--have
reported to USDA they are not sure their contracts allow them to seek
advice from others. Growers should be assured that seeking such
guidance is not prohibited, regardless of confidentiality clauses in
offered contracts. Further, AMS agrees that educational outreach is
valuable to the industry and intends to continue and enhance efforts in
those areas. Educational outreach, however, is not a replacement for
legal protection. This rule provides this protection by requiring
inclusion of the advisory disclosures in the Disclosure Document.
Accordingly, AMS made no change to the proposed rule based on these
comments.
Comment: A poultry industry trade association said AMS should omit
requirements that are irrelevant to determining grower income, such as
the requirement to provide information about general rights and
obligations under the Act.
AMS Response: AMS does not agree that disclosures should focus only
on grower income. Each of the disclosure elements required in this
final rule will have a meaningful impact on growers' ability to
understand and evaluate the production agreement. At earlier listening
sessions and competition workshops, USDA heard from growers that
certain information is critical to their decision making and ultimate
success, and they have urged AMS to
[[Page 83239]]
require dealers to provide this information. For example, growers have
told us that knowing the live poultry dealer's policies related to the
sale or transfer of a poultry growing operation before they enter a
contract and make associated capital investments would help them
evaluate the long-range risks of doing so. In another example, growers
knowing the dealer's policy regarding feed outages will be better
prepared to avoid such situations or react appropriately in a timely
manner to minimize the impact of an outage on the flock. While having
such information forestalls confusion, misunderstanding, and
unnecessary delays for growers, live poultry dealers also benefit from
providing such information by avoiding potentially misleading or
deceptive communications and by maximizing business outcomes
efficiently. Accordingly, AMS made no changes to the rule as proposed
in response to this comment.
Comment: A poultry industry trade association said AMS should
clarify what constitutes a ``material omission'' or ``misleading
statement'' for the purposes of proposed Sec. 201.100(b)(8) and asked
whether an incorrect forecast or an unforeseen market change not
contemplated by a disclosure would be considered ``misleading.''
AMS Response: The sufficiency and reliability of disclosures depend
heavily on the facts and circumstances. Moreover, contract causes of
action are, in general, a function of State law, and State courts may
have different standards for interpreting ``material omission'' and
``misleading statement.'' The law around ``material omissions'' or
``misleading statements'' is a well-established part of the law of
deception under the Act, the FTC Act, and other relevant Federal and
State disclosure laws. AMS made no changes to the rule as proposed
based on this comment.
Comment: A meat industry trade association said AMS should modify
the rule to consider proprietary and confidential information that
would be provided to potential growers who would not necessarily end up
with a business relationship with the live poultry dealer.
AMS response: AMS has already explained why the information in the
Disclosure Document does not give rise to confidential or propriety
business information.
Recommendations for Additional Advisories
Comment: Multiple commenters urged AMS to establish that it would
be a violation of the Act for a live poultry dealer to threaten to
retaliate against a poultry grower who installs a feed scale to verify
the accuracy of feed deliveries, and that live poultry dealers should
have to disclose this right in the Disclosure Document. One commenter
said this right is important because the tournament system values the
growers' feed-to-weight conversion ratio, and if a live poultry dealer
reports having provided a higher amount of feed than was actually
provided, the grower is improperly penalized for having a lower ratio.
AMS response: This issue is outside the scope of this rule. This
rule focuses on providing enhanced transparency to poultry growers and
does not address retaliation and related matters. In addition, AMS has
proposed a rule that would address retaliation against producers
including poultry growers.\75\ AMS is also considering additional steps
to address unfair practices as set forth in the June 8, 2022, Advanced
Notice of Proposed Rulemaking ``Poultry Growing Tournament Systems:
Fairness and Related Concerns.'' Therefore, AMS made no changes to the
rule as proposed based on this comment.
---------------------------------------------------------------------------
\75\ Agricultural Marketing Service, ``Inclusive Competition and
Market Integrity,'' Proposed Rule, Oct. 3, 2022, 87 FR 60010,
available at https://www.federalregister.gov/documents/2022/10/03/2022-21114/inclusive-competition-and-market-integrity-under-the-packers-and-stockyards-act.
---------------------------------------------------------------------------
Comment: Multiple commenters said the Disclosure Document should
include a warning about the dangers of breathing dust and ammonia, as
well as information about how poultry growers can protect themselves
and their employees from these dangers. Several of these commenters
said AMS should provide a fact sheet on respiratory health hazards.
Similarly, a commenter said AMS should require disclosures to farmers
and to the public of what goes into the feed for poultry, saying
poultry growers could be irreparably harmed by handling dangerous
chemicals and consumers could be harmed by ingesting these chemicals.
AMS response: This issue is outside the scope of this rule. The
rule focuses on transparency regarding the financial risks and benefits
of raising poultry under a poultry growing arrangement. AMS does not
discount the commenters' concerns here and recognizes there are risks
associated with growing poultry that are not directly financial. Nor
does AMS discount the possibility that deception and unfair practices
may extend to injuries beyond promises of financial gain. Because this
comment is outside the scope of the rule, AMS made no changes to the
rule based on these comments. AMS, however, encourages all potential
and current poultry growers to educate themselves on the various health
and safety risks associated with growing poultry.
E. Financial Disclosures
AMS proposed to require live poultry dealers to provide various
financial disclosures to poultry growers, including disclosure of
bankruptcy filings, grower terminations, and grower payment history and
projections.
Disclosure of Bankruptcy Filings
AMS proposed in Sec. 201.100(c)(2) to require the Disclosure
Document to contain a summary of bankruptcy filings in the prior 6
years for the live poultry dealer and any parent, subsidiary, and
related entity.
Comment: Several poultry and meat industry trade associations
argued that the requirement to disclose past bankruptcy filings is
unnecessary. For example, a commenter said bankruptcy filings are rare
among live poultry dealers and are already public if interested parties
wish to obtain them. Another commenter noted that this information
would be difficult to maintain for larger companies with multiple
subsidiaries and said it is unclear why disclosing a live poultry
dealer's bankruptcy history would be relevant to determining a poultry
grower's earnings under a contract, or why this requirement is for a 6-
year period rather than 5 years as with other disclosure requirements
in the rule.
AMS response: The financial stability of a dealer is a relevant
factor for prospective growers to consider. Dealers or complexes that
are underperforming financially may be subject to closure or reduced
production levels, resulting in negative effects on grower revenue and
potential contract termination. For example, numerous grower contracts
were terminated as a result of the Pilgrim's Pride bankruptcy in 2008.
Had those growers understood the financial state of the company and the
risk to their operations, they may have elected to work with a
different dealer, not entered the business at all, or taken other
measures to protect themselves from the risk of financial loss. In
addition, because corporate relationships may not be known to growers,
the public nature of filings may be inadequate to effectively
communicate this type of risk. However, to improve the uniformity of
recordkeeping for this disclosure regime in the final rule, and in
response to comments, AMS has elected to adjust the bankruptcy
information reporting period required by Sec. 201.102(c)(2) to 5
years.
[[Page 83240]]
Grower Termination and Bankruptcy Disclosures
In the proposed rule, AMS asked if it should require dealers to
disclose the contractual grounds for termination or suspension of the
poultry growing arrangement.
Comment: Several commenters suggested AMS should require live
poultry dealers to disclose the contractual grounds for termination or
suspension of the poultry growing arrangement. These commenters said it
is important for poultry growers to know the circumstances under which
the company can terminate the contract and leave the grower without
income because growers make a substantial investment under the contract
arrangement.
AMS response: Current regulatory requirements adequately cover this
issue. Under existing regulations at Sec. 201.100(c)(1), live poultry
dealers are required to provide growers a copy of their contract that
includes, among other things, ``the duration of the contract and
conditions for the termination of the contract by each of the
parties.'' Existing regulations at Sec. 201.100(h) also require live
poultry dealers to provide terminated growers with written notice,
including the reason for termination and appeal rights. This
information is shared between dealers and individual contracted growers
only, and is not part of the Disclosure Document required of broiler
dealers under Sec. 201.102. AMS made no changes to the current
regulations based on these comments.
Comment: In other responses to AMS's request for input about
contract terminations, multiple non-profit organizations asked AMS to
require live poultry dealers to disclose the annual percentage of
contracts they terminated over a certain period. The commenters said
these disclosures would give growers a sense of the nature of the
contract relationship, as well as the range of contract cancellation
risks. One commenter noted this information is necessary for growers to
determine the likelihood of failure. One commenter also suggested AMS
require dealers to provide information about the most common reasons
for termination. This commenter further suggested that live poultry
dealers should include a summary of the average rate of bankruptcies
among growers who have worked with that dealer over the past 5 years,
as well as information on the most common reasons why growers may have
filed for bankruptcy.
AMS response: In the proposed rule, AMS had not required live
poultry dealers to provide information about grower turnover rates.
However, AMS agrees with commenters' suggestions that disclosures
related to the rates of contract termination and non-renewal with a
live poultry dealer could help current and prospective poultry growers
better assess the stability of the dealer's contract relationships. In
requesting disclosure of bankruptcy and litigation, AMS was seeking to
capture the risk that might arise from termination or unstable
relationships. Grower turnover rates are, in AMS's views, a useful
metric to assess those risks, as well as to assess grower satisfaction
with the dealer. In AMS's experience regulating the industry, grower
turnover rates commonly reflect changes to poultry sales in the
wholesale and retail marketplace, as well as general live poultry
dealer grower management practices. Local turnover rates might stem
from regional management practices, local agent practices, or changes
in local agricultural or even labor markets. Local turnover rates may
also reflect company-wide policy and management of poultry production,
suggesting that growers need to understand and compare both local
complex and company-wide grower turnover history in order to evaluate
offered poultry growing arrangements.\76\ As such, grower turnover
rates provide information that is similar to, but also more holistic,
than bankruptcy or litigation, and assist the grower in evaluating the
risk of termination or an unstable or unsatisfactory relationship.
---------------------------------------------------------------------------
\76\ In a case involving Arkansas growers, Judge Higginson wrote
``[c]iting a downturn in the poultry industry, PPC terminated its
contracts with the Growers and filed for bankruptcy.'' Growers v.
Pilgrim's Pride Corp. (In re Pilgrim's Pride Corp.), 706 F.3d 636,
638 (5th Cir. 2013). In a case involving terminated Florida growers,
a Pilgrim's Pride executive was reported to have testified that
``terminating the contracts (was) necessary and the best option . .
. slowing or stopping operations at Pilgrim's Pride plants is
expected to save the company $250 million this year,'' from
``Pilgrim's Pride cut growers based on production factors,'' Meat +
Poultry (March 11, 2009).
---------------------------------------------------------------------------
Accordingly, AMS has added a requirement to incorporate broiler
grower turnover rates at the local complex and company level into the
Disclosure Document. This information will allow growers to compare the
turnover rates of multiple live poultry dealers as a risk factor when
making contracting decisions. Section 201.102(c)(5) is added to the
final rule and requires live poultry dealers engaged in the production
of broilers to disclose average annual broiler grower turnover rates
for the previous calendar year and the average of the 5 previous
calendar years at both the company level and the local complex level.
AMS is requiring grower turnover rates for the previous year and
the average of the 5 previous years at both the complex and company
level, whereas it is requiring dealers to provide previous-year average
grower payment information only at the complex level and not at the
company level (as in proposed Sec. 201.100(d)(1)). AMS is adopting
this distinction because company-wide grower turnover metrics provide
the grower with an important picture of termination or other risks that
may arise from company decision-making relating to sales market
fluctuations--for example, if a dealer terminates growers quickly in
response to sales changes. Complex level turnover rates are also
important to growers because they are likely to provide insight into
how the company, and in particular its local agents, interact with
growers. AMS developed detailed instructions for how to calculate
average annual broiler grower turnover rates, which are included in
Form PSD 6100, to facilitate ease of compliance by live poultry
dealers.
As explained in the previous comment response, live poultry dealers
are required to provide individual terminated growers with written
notice, including the reason for termination and the grower's appeal
rights. However, AMS has determined that this final rule should not
require dealers to explain the reasons for terminations of other grower
contracts on a complex- or company-wide basis in the Disclosure
Document. AMS knows through experience working with the industry that
poultry dealers and growers can have widely different perspectives on
the causes and circumstances for contract terminations. Similar to a
grower's evaluation of a dealer's bankruptcy or litigation history,
growers can consider grower turnover rates when evaluating offered
contracts, but live poultry dealers cannot reasonably be expected to
convey the varying reasons that may be the basis for terminating
contracts as that would at a minimum be burdensome and may in some
circumstances reveal proprietary business information or create
litigation risks to the company.
AMS also does not agree that dealers should be required to furnish
information about the rates and causes for grower bankruptcies. AMS
does not expect live poultry dealers to know all the rates or reasons
for individual growers' personal or business decisions to file for
bankruptcy, which may or may not have anything to do with the poultry
growing arrangement. Accordingly, no changes to the rule as
[[Page 83241]]
proposed were made on the basis of these comments.
Facilitating Harmful Coordination by Integrators
In the proposed rule, AMS asked whether certain types of financial
disclosures could facilitate harmful coordination by integrators and,
if so, how this risk could be mitigated.
Comment: A non-profit organization said the large market share held
by a few large companies, along with the existence of specialized data
companies that service large integrators, has already led to harmful
coordination to reduce both contract grower payments and wages for
poultry industry workers. This commenter said the solution to avoid
harmful coordination by integrators would be for USDA to work with DOJ
to crack down on anticompetitive practices, rather than to limit
disclosure of information to prospective and current contract growers.
AMS response: AMS is committed to working with DOJ to curb illegal
trade practices, including antitrust violations, but antitrust
violations are not the only behavior regulated by the Act. This rule is
focused on providing enhanced transparency to current and prospective
poultry growers because of the persistent challenges they have faced
for many years with respect to their poultry growing arrangements.
Enhancing transparency and reducing information asymmetry through this
rule will allow growers to better understand evaluate, and compare
contracts to reduce deceptive practices. AMS made no changes to the
rule as proposed based on this comment.
Effect of Financial Disclosures on Lending System
In the proposed rule, AMS requested comment on the effect the
proposed financial disclosures would have on the lending system and on
the provision of credit to growers.
Comment: A non-profit organization said poultry growers finance the
barns they use through loans, which are often guaranteed through USDA's
Farm Services Agency (FSA) or the Small Business Administration (SBA).
According to this commenter, when growers are unable to pay their loans
because of inadequate pay from the tournament system, taxpayers end up
paying for them. This commenter said FSA should use the information
disclosed under the proposed rule to refuse to guarantee loans unless
the contract terms are at least as long as the life of the loan.
AMS response: AMS noted in the proposed rule that FSA has
recognized repayment reliability concerns related to informational
asymmetries and their effect on poultry grower payments and total
revenues. Under the loan repayment program, FSA assesses the
``dependability'' of poultry production contracts and requires
contracts to provide assurance of the grower's opportunity to generate
enough income to ensure repayment of the loan by incorporating
requirements such as a minimum number of flocks per year or similar
quantifiable requirements.\77\
---------------------------------------------------------------------------
\77\ USDA Farm Service Agency, Guaranteed Loan Making and
Servicing 2-FLP (Revision 1) pp.8-86 (October 2008). https://www.fsa.usda.gov/internet/FSA_fFile/2-flp.pdf; accessed 1/3/2022.
---------------------------------------------------------------------------
The commenter's request that FSA require contract length match
repayment term is outside the scope of this rulemaking. However, AMS is
committed to working with FSA and SBA on poultry industry lending
practices. AMS made no changes to the rule as proposed based on this
comment.
Disclosure of Grower Payment History and Projections
In Sec. 201.100(d) (1), (2), and (3) of the proposed rule, AMS
proposed to require the Disclosure Document to contain two tables. One
table would show the average annual gross payments, in U.S. dollars per
farm facility square foot, to poultry growers for the previous calendar
year for all complexes owned or operated by the live poultry dealer.
The second table would show the average annual payments, in U.S.
dollars per farm facility square foot, to poultry growers at the local
complex. The proposed rule also specified how the tables should be
organized and how values should be calculated.
Under the proposed rule, if a live poultry dealer modified the
building specifications such that the grower would be required to make
additional capital investment, or the tables of payment history would
not accurately represent projected grower annual payments, the live
poultry dealer would be required to provide additional information. The
dealer would be required to provide tables presenting projections of
average annual gross payments to growers under contract with the
complex, and having the same housing specifications, for the term of
the poultry growing arrangement, at five quintile levels expressed as
dollars per farm facility square foot. Dealers would further be
required to explain why the payment history information would not
accurately represent projected future payments.
AMS asked whether the proposed grower payment history and
projection disclosures were adequate to enable growers to make sound
business decisions.
Comment: Several grower groups and State attorneys general
indicated support for the proposed grower payment history information
and projection disclosures. Commenters said the information should
increase transparency for growers and that having information about
real growers' outcomes in the region would help potential growers make
decisions about entering into poultry growing arrangements. Commenters
said that reporting average grower pay in quintiles helps prospective
growers understand and compare income variations and evaluate their own
income variation risk accordingly. On commenter explained that having
realistic payment information would allow farmers to plan financing
more accurately and avoid such predicaments as revenue shortfall in the
face of equipment replacement and repair costs.
AMS Response: AMS notes widespread support among commenters for the
utility of the proposed disclosures for growers. In this industry as
well as many others, past performance is a commonly relied-upon
predictor of future performance. As explained in this section and
elsewhere in this document, dealer discretion with respect to
production inputs, and grower discretion with respect to flock
management decisions and applied skills, are also determinative factors
in grower outcomes. Thus, historical payment data and future
projections become the baseline upon which growers can evaluate
likelihood of their success or failure under poultry growing
arrangements.
Comment: A number of industry groups said providing the disclosures
would impose significant costs on dealers but would be of little value
to poultry growers.
AMS response: As detailed in the Regulatory Impact Analysis below,
AMS has determined that except for the first year that the rule is
effective, the benefits of this rule to growers exceed costs to
dealers. Benefits include reduced uncertainty in the broiler grower's
revenue stream, reduced risk of retaliation and potential for fraud and
deception, and more optimal allocation of capital and labor resources,
leading to improved efficiencies across the entire industry. First-year
costs to live poultry dealers--following the effective date of
[[Page 83242]]
the rule--include expenses for setting up new reporting and
recordkeeping processes, which will decrease in succeeding years.
Additionally, in economic terms, AMS expects total costs to the
industry from the rule--as with total benefits--will be very small in
relation to the total value of industry production. Significant
benefits in the form of decision-making tools will nevertheless accrue
to individual growers given the opportunity to understand, evaluate,
and compare contract data provided by live poultry dealers in
Disclosure Documents pertaining to their poultry growing arrangements.
Comment: One commenter said that the disclosures would be of little
value to growers because past economic performance is not a reliable
predictor of future economic conditions. The commenter asserted that
the grower's income is determined as specified in the contract and
driven primarily by the grower's skill and care.
AMS Response: AMS acknowledges that items specified in the
contract, and the grower's skill and care, play important roles in
grower performance. However, the live poultry dealer determines many
items not specified in the contract that significantly impact the
grower's income, such as how many flocks a grower receives annually and
the number of birds in those flocks. In addition, in tournament
systems, the grower's skill and care are supposed to be rewarded in
reference to the skill and care provided by other growers settling with
them under relative performance payment contracts. The disclosed
information provides a history of past grower performances representing
the range of skill and care of the pool of growers with whom they will
be settled, and who operate under the same contract at the same
complex. This information will provide the potential grower a firmer
basis for forming performance expectations than a copy of the contract
and a self-estimation of their skill and commitment in isolation. It is
true that past economic performance may not always be a reliable
predictor of future economic conditions. For example, past economic
performance could not have predicted U.S. economic conditions following
unanticipated events like a worldwide pandemic, foreign conflicts,
social upheaval, or an avian flu epidemic. Nevertheless, past economic
performance is commonly used in many industries to help predict and
plan for future economic performance.
Actual payment information from the recent past illustrates how a
live poultry dealer wields its discretion in the contract. It offers
one of, if not the, best pieces of available information to provide
growers with a reasonable range of what their incomes may be,
reflecting the range of grower skills and other factors present in the
marketplace.\78\ Further, providing only the average, or no information
regarding variability, is deceptive in the face of payment
variability--a significant complaint that AMS has received over the
years from growers. Based on AMS's experience monitoring these markets,
payments to growers frequently encompass a wide range above and below
the mean payment level, as well as significant variation between
specific contracts and grower pools.
---------------------------------------------------------------------------
\78\ Forecasts of a variable are often based on past values of
that variable. J.C. Brocklebank, D.A. Dickey, and B.S. Choi, SAS for
Forecasting Time Series (2018): 23.
---------------------------------------------------------------------------
In data drawn from a 2011 nationally representative sample of
broiler growers, the mean payment received by contract growers was 5.77
cents per pound, but 10 percent of growers earned at least 7.02 cents
per pound, while 10 percent earned less than 4.32 cents per pound.\79\
While the data reported above range across all growers and all
contracts, payments also range widely for specific contracts and grower
pools.\80\ Presenting payment history information broken out by
quintiles (or, for very small complexes, by mean and standard
deviation) gives insight into the variability of cash flow within
recent years. As commenters pointed out, not even the best economic
models can predict the future with a high degree of certainty, so
presenting recent payment information broken out by quintiles (or, for
very small complexes, mean and standard deviation) to share the range
of performance is designed to enable growers to evaluate whether their
potential earnings would be sufficient to meet personal and business
financial obligations, as well as to better handle risk and improve
farm management. The rule also recognizes that economic conditions may
vary, and so provides the opportunity for live poultry dealers to
explain why any future projections may differ from past outcomes.
---------------------------------------------------------------------------
\79\ James M. MacDonald, ``Technology, Organization, and
Financial Performance in U.S. Broiler Production.'' U.S. Department
of Agriculture Economic Research Service, Economic Information
Bulletin No. 126 (June 2014).
\80\ Charles R. Knoeber and Walter N. Thurman. ``Testing the
Theory of Tournaments: An Empirical Analysis of Broiler Production.
''Journal of Labor Economics 12 (April 1994). Armando Levy and
Tomislav Vukina. ``The League Composition Effect in Tournaments with
Heterogeneous Players: An Empirical Analysis of Broiler Contracts.''
Journal of Labor Economics 22 (2004).
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Comment: Several commenters representing poultry industry interests
expressed concerns that any data on potential future payments is
misleading to growers, given the number of factors that affect payments
and the role of a grower's own skill.
AMS response: Grower skill does play a role in flock performance
and therefore per-flock payments. The projection quintiles required in
this rule are specifically designed to capture a wide range of grower
performance. Therefore, the bulk of variability in future projections--
and presumably the reason for offering projections in lieu of
historical information in the first place--would be due to anticipated
changes in dealer-controlled factors such as flock placement frequency
and flock density, changes in production needs, and changes to the
length of grower contracts. The supposition that payment disclosures
would be misleading would only be true to the extent that dealers
supply misleading data related to factors they control. To do so would
be deceptive and a violation of the Act. Accordingly, AMS made no
changes to the rule as proposed based on these comments.
Comment: Several poultry and meat industry trade associations
requested that AMS require only grower payment history information for
the grower's complex rather than for all complexes owned by the live
poultry dealer. These commenters noted that complexes in other
geographic areas face different economic conditions, such as cost of
living, labor costs, and State and local taxes, arguing that payment
information for these complexes would not be useful to poultry growers
and would potentially confuse them.
AMS response: Payment history for complexes in other geographic
areas may be useful to growers in some circumstances, in particular, in
areas with only one or two live poultry dealers where there may not be
the ready availability for growers to compare what they might earn from
providing poultry growout services.\81\ However, some factors may vary
regionally, such as labor costs, which could reduce the usability of
the information. This rule does not require payment information for
complexes in other geographic areas. Therefore, in the
[[Page 83243]]
final rule, AMS removed the proposed requirement in Sec. 201.100(d)(1)
that live poultry dealers provide grower payment history information
for all complexes they own, instead requiring in Sec. 201.102(d)(1)
that live poultry dealers engaged in the production of broilers provide
only tables showing average annual gross payments to broiler growers at
the local complex.
---------------------------------------------------------------------------
\81\ In the last available survey of local markets (2011),
MacDonald and Key found that about one quarter of contract growers
reported that there was just one live poultry dealer in their area;
another quarter reported two; another quarter reported three; and
the rest reported four or more. James M. MacDonald, Technology,
Organization, and Financial Performance in U.S. Broiler Production,
EIB-126, U.S. Department of Agriculture, Economic Research Service,
June 2014: 30, https://www.ers.usda.gov/webdocs/publications/43869/48159_eib126.pdf?v=0.
---------------------------------------------------------------------------
Comment: A poultry industry trade association urged AMS not to
require future projections, saying it would be difficult for dealers to
accurately make such projections, given that they depend in part on the
economic climate and on other factors that cannot reasonably be
foreseen. This commenter said if AMS requires projections, they should
be qualified and exempt from certifications. A trade association
suggested disclosure should include a disclaimer that past income does
not guarantee future results and that income will be governed by the
terms of the contract, the party's performance, and additional factors
neither party has control over.
AMS response: AMS intends for live poultry dealers to make and
disclose assumptions relating to projections, allowing poultry growers
to better assess the context behind them. This final rule does not
require disclosure of projections to include a disclaimer that past
performance is not likely to reflect future results but does not
prohibit it either. AMS will carefully monitor the use of disclaimers
to prevent confusion and deception. To the extent that a disclaimer is
provided in a manner that helps the growers understand that past income
is not a contractual guarantee to the grower of such income, it may be
acceptable. But such a disclaimer is not required, as the Disclosure
Document should already clearly differentiate between past income and
future projections that are made because past performance is not likely
to reflect future results. AMS underscores that a live poultry dealer
may not disclaim or absolve itself of any obligation to disclose
information required to be disclosed in this rule, waive any liability
under this rule, or confuse or discourage growers from reviewing the
disclosures set forth under this rule.
Additionally, in the final rule, AMS has clarified that
certifications by principal executives are made with respect to the
sufficiency of the governance framework for delivering accurate and
reliable disclosures, rather than to the specific accuracy of
disclosures to particular growers because, as discussed elsewhere, such
a certification is more appropriate with respect to the role of the
principal executive in providing the necessary governance and controls
to reasonably provide for accuracy in disclosures.
Comment: Commenters from both the grower and live poultry dealer
sectors requested more specificity on how to calculate average annual
gross payments. Although the proposed rule provided detail on
calculations, commenters stated the instructions lacked sufficient
specificity to assure that live poultry dealers could comply and that
poultry growers would receive adequate data on which to base business
decisions.
AMS response: In response to commenters' request for specificity on
how to calculate average annual gross payments, AMS developed detailed
instructions for how to calculate average annual broiler grower
turnover rates, which are included in Form PSD 6100. AMS also added a
definition in Sec. 201.2 for gross payments, which means the total
compensation a poultry grower receives from the live poultry dealer,
including, but not limited to, base payments, new housing allowances,
energy allowances, square footage payments, extended lay-out time
payments, equipment allowances, bonus payments, additional capital
investment payments, poultry litter payments, etc., before deductions
or assignments are made.
Comment: Multiple commenters asked AMS to require the Disclosure
Document to include a maximum percentage variance from the base pay
rate under the contract. These commenters said this information would
give growers a better idea of the true range of potential incomes.
AMS response: The disclosure of payment quintiles or mean and
standard deviation provides substantially more data points useful to
assess payment variance and range of potential outcomes compared to
maximum percentage variance, as quintiles show pay broken down into
five bands. Live poultry dealers will report only a mean and standard
deviation if there are nine or fewer growers, which provides a measure
of expected outcome and expected volatility around that outcome. The
base price and the maximum variance would not give an expected outcome
or volatility measure, nor would it provide context useful to establish
probabilities of where a grower would fall in the range. While AMS
understands that growers have expressed concerns regarding the maximum
variability of pay from the base pay, the financial disclosures in
Sec. 201.102(d) provide objectively more data points and create a more
appropriate context for assessment compared to a maximum variance.
While outside the scope of this rule, AMS is considering other changes
to the poultry grower payment systems. See June 2022 Advance Notice of
Proposed Rulemaking on ``Poultry Growing Tournament Systems: Fairness
and Related Concerns.'' \82\ Therefore, AMS has not required in this
final rule disclosure of maximum percentage variance from the base pay
under the contract in the financial disclosures.
---------------------------------------------------------------------------
\82\ Agricultural Marketing Service, USDA, ``Poultry Growing
Tournament Systems: Fairness and Related Concerns,'' 87 FR 34814,
June 8, 2022, available at https://www.federalregister.gov/documents/2022/06/08/2022-11998/poultry-growing-tournament-systems-fairness-and-related-concerns.
---------------------------------------------------------------------------
Grower Variable Costs
Proposed Sec. 201.100(d)(4) would have required the live poultry
dealer to provide a summary of the information it collects or maintains
relating to grower variable costs inherent to poultry production, or
costs that may be borne by the grower. AMS asked whether the proposed
rule listed the appropriate items regarding grower variable costs that
dealers should list and disclose to growers. AMS asked whether it
should require dealers to disclose, for example, information about
costs related to compliance with environmental regulations, energy,
water, and waste disposal and whether the timing of housing upgrades is
reasonably predictable enough for those costs to be included in grower
variable costs during the poultry growing arrangement.
Comment: Several farm bureau commenters suggested AMS consider
variable costs in different regions, as these costs vary from region to
region rather than being a ``one size fits all'' disclosure. These
commenters also said the rule should require disclosure of all
information a dealer intends to collect, and that all information
should be housed in an encrypted system and not subject to Freedom of
Information Act requests to protect the privacy of the grower. A live
poultry dealer said different farms would have different views on which
variable costs are inherent in poultry production, offering as examples
labor and insurance costs. A poultry industry trade association said it
is inappropriate for a live poultry dealer to be required to collect,
produce, or certify the accuracy of information about grower variable
costs, arguing that growers are responsible for understanding and
controlling their costs of production. A poultry grower said AMS should
require live poultry dealers to disclose variable costs including
livestock, housing upgrades,
[[Page 83244]]
financing costs, and any cost related to environmental compliance.
AMS response: Growers benefit from the disclosure of this
information on a local or regional level because it will better enable
them to analyze the potential profitability of their poultry growing
arrangement or changes thereto. Such information may be available to
growers through market research services or in some cases USDA
resources, but to the extent that live poultry dealers have this
information, it would facilitate growers' ability to access it and,
consequently, also reduce information asymmetry, which creates risks in
the contracting process. Based on AMS's experience auditing and
investigating live poultry dealers, and the observation that dealers
provide grower allowances from time to time, such as for energy, AMS
knows that many live poultry dealers already are cognizant of factors
affecting local and regional cost structures. This rule does not
require live poultry dealers to collect the information, but rather
requires that information be disclosed to growers if live poultry
dealers do in fact collect it. AMS encourages dealers to disclose the
information at the most granular level that is reasonable and will work
with live poultry dealers to address questions during implementation.
No changes to the rule as proposed were made in response to these
comments.
Comment: Multiple commenters requested that AMS take action to
prevent growers from having to bear the costs of environmental
compliance and waste disposal, saying that these costs are related to
the system of production the live poultry dealers dictate and should
not be treated as grower variable costs.
AMS response: The contractual distribution of liabilities related
to environmental compliance and waste disposal are outside the scope of
this rule. To the extent that the costs of environmental compliance and
waste disposal are grower variable costs under particular poultry
growing arrangements, they should be disclosed by the live poultry
dealer under the requirement to disclose information relating to grower
variable costs. Therefore, AMS made no changes to the rule as proposed
based on these comments.
Comment: Several non-profit organizations said AMS should impose a
recordkeeping requirement to ensure that live poultry dealers cannot
skirt the rules on grower variable costs by failing to maintain
information relating to these costs. A meat industry trade association
said the proposed requirement to produce a summary of information the
live poultry dealer collects or maintains relating to grower variable
costs inherent in poultry production is arbitrary and capricious
because it lacks a cost-benefit justification. The commenter said
further that dealers may have concerns about sharing such data because
they use it for confidential or proprietary business purposes, and that
dealers are not the best source of information on grower variable costs
since they do not experience such costs themselves. A poultry industry
trade association commented that live poultry dealers do not
systematically maintain all this information. Several non-profit
organizations contended that poultry companies share detailed market
and grower information with each other through private data collection
firms.
AMS response: The final rule adopts the proposal that requires live
poultry dealers to include in Disclosure Documents a summary of
information that is collected by live poultry dealers pertaining to
grower variable costs. The grower variable cost information is general,
not specific to an individual grower; thus, if a live poultry dealer
collects this information, they will need to disclose a summary of it.
Variable costs play a role in grower profitability, and
understanding the information helps the grower manage cash flow.
Improved grower cash flow management allows growers to continue in a
productive capacity, benefiting live poultry dealers as well as
themselves. These costs are directly attributable to grower production.
AMS does not understand how summarized information related to these
costs could be construed as confidential business information. The
benefits of disclosing these costs to growers outweigh the potential
business confidentiality issues.
Often this type of information takes the form of sample cash flow
budgets or similar documents, which live poultry dealers can use to
show differences in variable costs between housing specifications,
allowing growers to assess differences in fixed costs against changes
in variable costs. In balancing the live poultry dealer burden against
the grower benefits, AMS sought to ensure growers have access to this
type of information to the extent that dealers collect it. For growers
contracted with dealers who do not collect this information, there are
other resources via the extension service and producer organizations
that may be able to provide similar types of information. Section 401
of the Act provides for recordkeeping requirements of this type; no new
requirements are necessary for this provision.
This type of information has value to many dealers, and AMS does
not want to discourage its collection with inflexible requirements. AMS
will investigate failures to provide these summaries where data is
collected. Accordingly, no changes to the rule as proposed were made in
response to these comments.
Comment: One commenter asked whether grower variable cost
information has been used collusively, suggesting that AMS and DOJ
investigate this information and that poultry growers receive access to
it.
AMS Response: Whether live poultry dealers have used grower
variable cost information collusively is outside the scope of this
final rule, and AMS has made no changes to the rule as proposed based
on this comment.
Informational Service Contact Information
Comment: Poultry grower groups expressed support for the proposed
rule's requirement that the Disclosure Document include current contact
information for the State university extension service office or county
farm advisor's office that can provide information about poultry grower
costs and poultry farm financial management in the grower's geographic
area. Other commenters from the poultry industry said this information
is already provided and should not be mandated by regulation.
AMS response: The Act affords growers the right to understand,
evaluate, and compare contracts among dealers to inhibit deceptive
practices. Access to any information about poultry grower costs and
farm financial management can help growers make informed business
decisions and avoid their being misled regarding the advisability of
offered contracts. Based on its experience with record reviews, AMS is
aware and appreciates that some dealers already include the required
contact information in their contracts, and wants all growers to have
access to the same information. Further, the additional burden to
dealers associated with providing this information is small, as
described in the costs section of the Regulatory Impact Analysis below.
Accordingly, AMS made no changes to the rule as proposed based on these
comments.
Other Financial Disclosures Not Currently Included
Comment: A State farm bureau commenter said that companies should
disclose any requirements for a poultry
[[Page 83245]]
grower to make additional capital investments and whether the grower is
being paid enough to cover these costs. According to the commenter,
requiring these disclosures are important because equipment and housing
upgrades typically benefit the live poultry dealer at the expense of
the poultry grower.
AMS response: The Act requires all poultry growing contracts to
contain the following language: ``additional large capital investments
may be required of the poultry grower or swine production contract
grower during the term of the poultry growing arrangement or swine
production contract.'' 7 U.S.C. 197a (b)(1). Additionally, Sec.
201.102(d)(2) of this rule requires live poultry dealers to provide a
new Disclosure Document, which includes revenue projections, when
``housing specifications are modified such that an additional capital
investment may be required.'' The required revenue projections are
intended to help growers and their business advisers evaluate the
proposed capital improvements to determine feasibility of the contract.
With adequate information, growers should be capable of determining
whether the projected revenues are likely adequate to cover the costs
of capital improvements. Dealers, for whom there is a potential
conflict of interest, should not be expected to advise growers about
whether projected revenues will cover capital improvement costs. AMS
agrees with the concerns raised by growers and has addressed them.
F. Other Disclosures
Sale-of-Farm Disclosures
In proposed Sec. 201.100(c)(3), AMS proposed to require the live
poultry dealer to include in the Disclosure Document a statement that
describes the dealer's procedures regarding the potential sale or
reassignment of the poultry grower's facility. AMS requested comment on
whether the proposed sale-of-farm policies are adequate to ensure
transparency and effective grower decision making.
Comment: Poultry grower groups expressed support for requiring live
poultry dealers to include a statement regarding the potential sale or
reassignment of the poultry grower's facility. These commenters stated
significant financial harm comes from dealers revoking the contract for
a grower's farm, making it unsellable. Poultry industry groups opposed
the sale-of-farm disclosures, contending the requirement does not have
any bearing on how much a grower can expect to earn, is not feasible
because a dealer must consider numerous factors when deciding to offer
a poultry growing arrangement to a successive buyer of a farm, and
would require disclosure of confidential information about dealer
business practices.
AMS response: The ability to exit an industry or a particular farm
location for whatever reason is an important factor in understanding
and evaluating a contractual relationship. Although a dealer's sale-of-
farm policies may not affect the grower's immediate earnings from
poultry production, those policies could very well affect the value of
the grower's capital investment upon retirement, for example if the
grower anticipating retirement is unable to sell the farm to a
prospective poultry grower at a fair price. A grower considering a
poultry growing arrangement must not be deceived into believing they
would be free to transfer their operations to prospective buyers or
heirs if the live poultry dealer would not be willing to consider
offering a poultry growing arrangement to the grower's successor. Thus,
growers need to understand dealers' policies regarding sale or transfer
of the farm and poultry growing operation before entering contracts
with dealers and before encountering future scenarios where they choose
or are forced to exit poultry farming. Growers informed of dealers'
policies and procedures will have the opportunity to develop a coherent
exit strategy.
Markets become more competitive with lower hurdles for participants
to enter and exit an industry. If extra profits are to be made, new
entrants will be attracted. If profits are too low, some participants
will exit the industry. Greater transparency into the relevant factors
that live poultry dealers use to evaluate entry and exit from the
industry will aid both growers and live poultry dealers by providing
additional certainty to growers about the conditions under which they
can enter and exit. This will enable growers to better align their
sale-of-farm choices to the needs of live poultry dealers. More
information about the conditions to exit the industry allows growers to
understand, evaluate, and compare contracts, preventing deceptive
practices.
AMS does not require that dealers establish a policy and procedure
where no consistent policy or procedure truly exists in practice.
However, when there is in fact no policy or procedure --an assertion
which AMS may scrutinize to ensure compliance with the rule--the lack
of such a policy and procedure should be disclosed. Similarly, where
the dealer looks to certain facts and circumstances in practice to
evaluate sale-of-farm circumstances, those facts and circumstances
should be disclosed as the dealer's policies and procedures. AMS
recognizes that dealers must consider a number of factors when deciding
whether to offer a poultry growing arrangement to a grower's successor,
and that not every factor may be known at the time the original grower
is offered a contract. The rule simply requires dealers to accurately
disclose their policies or procedures as a safeguard against grower
deception. Thus, in the final rule AMS is maintaining the sale-of-farm
disclosure requirement.
Finally, AMS is not requiring the disclosure of dealers'
potentially sensitive confidential business information, such as
expansion or reduction strategies. However, to the extent that a
grower's ability to exit, including through retirement, depends upon
such factors at any given time, the implications of those factors
should be disclosed. Accordingly, AMS made no changes to the rule based
on these comments.
Policies and Procedures Disclosures
AMS requested comment on whether it should require live poultry
dealers to disclose policies and procedures for determining whether a
disaster or sick flock was caused by the dealer or grower, and how a
grower is compensated under each of these scenarios. It further sought
comment on whether it should require disclosure of sick-flock risk when
a dealer maintains policies that do not remove sick flocks from the
tournament.
Comment: Multiple commenters suggested AMS include requirements for
disclosing live poultry dealer policies on dealing with sick or
diseased flocks, natural disasters, and other depopulation events, as
well as policies on grower appeal rights and processes. These
commenters cited the inherent risk of disease spread among confined
poultry, the potential for growers to face financial impact from
depopulation events outside of their control, and the effects of low-
quality inputs on tournament performance. Several commenters also
expressed the need for clarity regarding processes to address issues
such as feed quality or delivery timing discrepancies.
AMS response: AMS notes the significant impact on grower
performance and resulting incomes due to sick or diseased flocks,
natural disasters, and other depopulation events, e.g., the COVID-19
pandemic, avian influenza, weather events, or other possibly impactful
events outside the grower's control. Although the event itself is not
under the dealer's control,
[[Page 83246]]
the dealer may have and apply formal company policies to management of
those events. For example, a dealer may follow a company policy of
increased layout time or special treatment for sick, diseased, or high
early-mortality flocks. However, growers may be unaware of these
policies, in which case they have agreed to grow poultry for the dealer
without fully receiving key information. Dealers are in the best
position to inform growers about both the disastrous events that may
occur in connection with poultry growing and how the dealers' policy
decisions in those situations will impact growers' income. Without up-
front clarity about this information, the dealers' practices may be
deceptive. AMS has in the past received a range of complaints regarding
differential treatment between growers under the same live poultry
dealer in these circumstances. If dealers disclose their formal
disaster response policies--or the lack of such policies--to growers,
growers can be better prepared for the possibility that they may be
impacted differentially in certain situations. Such transparency is
intended to mitigate potential deception.
The types of disclosures requested by the commenters will provide
critical information up front to growers and safeguard against such
deception. Therefore, this final rule adds a provision at Sec.
201.102(c)(4) requiring live poultry dealers engaged in the production
of broilers to disclose their policies and procedures to address key
events to growers. These events include: increased layout time; sick,
diseased, or high early-mortality flocks; natural disasters, weather
events, or other events adversely affecting the physical infrastructure
of the local complex or the grower facility; other events that could
result in significant flock depopulation, affecting grower payments;
feed outages, including outage times; and grower complaints relating to
feed quality, formulation, or suitability; as well as any appeal rights
arising out of these events. The policies and procedures that live
poultry dealers disclose and implement may vary. For example, a live
poultry dealer may establish an adjusted calculated payment to growers
due to sick, diseased, or high early mortality flocks, or the dealer
may have a policy that clarifies an appeals process. AMS does not
require that dealers establish or follow any one policy and procedure,
but does require dealer's accurate disclosure and implementation of any
such policy or procedure as a safeguard against grower deception. Live
poultry dealers that modify or replace a disclosed policy would be
required to provide new disclosures to remain compliant with the rule.
Comment: A commenter recommended that AMS require live poultry
dealers to disclose both their own animal welfare policies and those of
the relevant industry trade groups to give poultry growers a more
holistic view of their obligations when entering into the contract and
to reduce potential animal welfare concerns.
AMS response: To the extent live poultry dealers seek to
incorporate animal welfare and other special growout requirements, such
as for sustainability or other premium products, those obligations
would need to be reflected in the contract if they are to be enforced,
and under current regulations must be provided to the grower before
entering into the poultry growing arrangement. The Disclosure Document
does not seek to reproduce the entire contract. Instead, it will
highlight aspects of the contract or poultry growing arrangement that
are generally not disclosed or are presented in ways that may be
misleading or otherwise create risks of deception. The information in
the Disclosure Document will allow growers to analyze the profitability
and financial risks of the poultry growing arrangement. If animal
welfare and other special growout requirements give rise to
profitability and financial risks, they would be considered variable
costs for growers and are required to be disclosed in accordance with
the variable cost disclosure requirements of this rule. In addition,
the disclosures of average annual gross payments to broiler growers
would also aid growers in identification of profitability and financial
risk holistically, which would incorporate impacts from animal welfare
policies and procedures. Accordingly, AMS made no changes to the rule
in response to this comment.
Legal Disclosures
In proposed Sec. 201.100(c)(1), AMS proposed to require the live
poultry dealer to disclose in the Disclosure Document a summary of
litigation over the prior 6 years between the live poultry dealer and
any poultry grower. This summary would include the nature of the
litigation, the party that initiated the litigation, a brief
description of the controversy, and any resolution to the litigation.
AMS also requested comment on whether legal violations or other matters
that could call into question the financial integrity of the live
poultry dealer should be disclosed.
Comment: Poultry grower groups and State attorneys general
expressed support for the proposed requirement for live poultry dealers
to disclose a summary of litigation with any poultry grower in the
previous 6 years. Commenters indicated that access to live poultry
dealers' ongoing and previous litigation would increase transparency in
the poultry industry and lead to more economic stability for growers.
Several commenters also suggested requiring disclosure of additional
litigation, such as litigation accusing the dealer or any of its
growers of poultry mistreatment; litigation by employees; litigation
the dealer has been subject to from DOJ, USDA, or other Federal
agencies; and litigation brought against corporate successors and
assignees of the dealer.
Multiple poultry industry commenters raised concerns about the
litigation disclosure requirement, including that it is overly broad
and does not consider the merits of the litigation or the reality that
cases with little or no merit often settle. Several industry commenters
also noted the proposed 6-year period for litigation disclosures is
inconsistent with other disclosure periods in the rule, suggesting AMS
should limit this period to 5 years.
AMS response: AMS agrees that disclosure of litigation between the
live poultry dealer and other poultry growers is an important piece of
information for growers. AMS does not agree that this disclosure is
overly burdensome because it is known by the company and may be
disclosed in other contexts. The litigation disclosure is important for
appreciating the financial and performance risks that growers may face,
as litigation reflects the company's approach to compliance and
performance as they relate to treatment of growers. AMS is unconvinced
litigation related to animal welfare issues and employees is correlated
with grower risks and treatment. For grower disclosure purposes AMS
sees advantages in limiting this disclosure to grower and live poultry
dealer actions. Similar to the reasoning above, adding governmental
actions would likely capture controversies unrelated to grower risks
and treatment, and where overlap exists, very often a private case will
run parallel to a government case. No changes were made to the rule
based on these comments.
However, to improve the uniformity of recordkeeping for this
disclosure regime, this final rule changes the period for which a
dealer's litigation must be summarized to 5 years, instead of 6 years
as originally proposed. Because contracts and grower relationships
evolve over time, litigation
[[Page 83247]]
history covering the prior 5 years would provide information related to
the most current contracts and contract terms. Requiring additional
disclosures regarding litigation beyond a 5-year period would be overly
burdensome and costly to dealers.
Comment: A poultry grower group and an individual said AMS should
require disclosure of any past government investigations, charges,
arrests, or convictions of a dealer or its growers or agents for
violations of animal-welfare-related law, such as State laws against
animal cruelty, neglect, or abandonment.
AMS response: While a live poultry dealer's compliance with animal
welfare-related laws could be relevant to the financial risks of the
poultry growing, AMS does not agree that these additional suggested
disclosures are necessary. AMS is not presently aware of such a pattern
or practice of intentional or reckless noncompliance with animal
welfare standards and makes no changes to the proposed rule based on
these comments.
Grower Appeals
Comment: Multiple commenters representing poultry growers
recommended that AMS require live poultry dealers to maintain an
appeals process for growers to report any issues that affect how their
flocks perform or how their pay is calculated. They also recommended
the Disclosure Document disclose the details of the dealer's appeals
process, including the method for submitting an informal appeal of a
live poultry dealer's contract performance and how these appeals will
be resolved. The commenters said such requirements would increase
fairness and transparency for poultry growers.
AMS response: As described in the preceding comment summaries, this
final rule requires disclosure of live poultry dealers' policies and
procedures regarding certain matters or circumstances, including any
grower rights to challenge or appeal dealer determinations arising from
those matters or circumstances. This final rule also requires dealers
to disclose policies regarding growers' appeals procedures if they
exist. AMS supports the creation of appeals policies; however,
mandating their creation is outside the scope of this rulemaking.
However, if a dealer has no such policies or procedures, this should be
disclosed. Understanding whether and how growers may report issues
affecting flock performance, or to challenge or appeal dealer
determinations will aid growers in decision making and reduce confusion
that may arise in times of disease or other disaster, or from
uncertainty or the exercise of discretion by live poultry dealers and
their agents in the field.
Accordingly, in response to comments, AMS added a provision in
Sec. 201.102(c)(4) of this final rule that requires live poultry
dealers engaged in the production of broilers to disclose their
policies and procedures on a number of specific matters or
circumstances and to disclose any policies regarding grower appeal
rights and processes arising out of these matters or circumstances.
Other Comments About Disclosures
Comment: Several organizations representing poultry growers
suggested AMS require other types of disclosures that would provide
more transparency for current and prospective poultry growers. These
commenters said AMS should require live poultry dealers to prominently
disclose the risk of entering a poultry contract in that area if there
are fewer than three options. Some commenters suggested AMS should
alert poultry growers to the business risks proposed by regional
monopsony and provide integrator options within a 50-mile radius of the
prospective or current poultry grower's facility.
AMS response: AMS does not agree that further warnings are needed
at this time, as the required disclosures aim to give poultry growers
the information needed to understand the risks of entering into a
poultry growing arrangement in any market, including where there are
only a small number of dealers. No changes to the rule were made in
response to these comments.
Comment: Some commenters said a live poultry dealer should be
required to disclose known health risks associated with birds that the
live poultry dealer has supplied, the expected pre-slaughter mortality
rate of the birds based on the live poultry dealer's experience with
similar growers, the most common causes of pre-slaughter death, and
other aggregated health data known to the dealer.
AMS response: AMS is maintaining without change in the final rule
the proposed requirement that live poultry dealers disclose known flock
health impairments. AMS does not agree with comments that disclosure of
an expected mortality rate or information about the causes of pre-
slaughter death or other aggregated health data should be included. The
expected mortality rate is not data a dealer can readily determine, and
the benefit to growers is not clear. This final rule requires live
poultry dealers to include in the Disclosure Document contact
information for local extension service offices that may be able to
provide the type of information commenters seek. No changes to the rule
as proposed were made based upon this comment.
Comment: A commenter urged AMS to require disclosure of any
poultry-welfare advocacy campaign launched against the live poultry
dealer in the previous 6 years, along with a summary of the types of
animal health and welfare-related complaints lodged against either the
dealer or its growers. This commenter also recommended that AMS require
dealers to disclose their animal health and welfare policies in pre-
contract disclosures, saying that such policies affect potential grower
earnings. The commenter stated further that health and welfare policy
and litigation disclosure would let prospective growers make informed
decisions about legal and reputational risk and potential animal
suffering they might face.
AMS response: It would be difficult for AMS--and possibly even for
live poultry dealers--to determine what constitutes an animal welfare
campaign or whether such a campaign has any validity. Presumably, such
campaigns launched against live poultry dealers, including any
associated litigation, are highlighted in the public media and
available to interested growers. Whether or how such campaigns should
be disclosed to growers is not contemplated in this final rule, which
focuses on the information AMS knows to be essential for informed
grower decision making.
Most live poultry dealers require growers to follow prescribed
animal welfare guidelines or policies, and dealers must include those
policies in the poultry growing contracts if growers are to be held
accountable for them. To minimize additional burden on live poultry
dealers, the final rule requires the Disclosure Document to highlight
only that contract information AMS finds to be most essential to grower
decision making related to poultry grower contracting to ensure those
provisions are transparent for growers. Under Sec. 201.102 of the
final rule, growers are provided with the Disclosure Document
simultaneously with the offered poultry growing arrangement, and
growers are given adequate time to review both prior to entering into
or renewing contracts.
Accordingly, AMS made no changes to the proposed disclosure
requirements based on this comment.
G. Governance and Certification
The proposed rule included provisions on governance and
certification in Sec. Sec. 201.100(f) and (g).
[[Page 83248]]
AMS proposed to create a new Sec. 201.100(f) to require live poultry
dealers to establish, maintain, and enforce a governance framework that
is reasonably designed to ensure the accuracy and completeness of the
Disclosure Document, and to ensure that live poultry dealers comply
with all their obligations under the Act and its regulations. This
proposed framework included audits and testing, as well as reviews of
an appropriate sampling of Disclosure Documents by the principal
executive officer or officers. AMS also proposed to require officers of
the live poultry dealer's company to certify that the company complies
with the governance framework requirement and that the Disclosure
Document is accurate and complete. In addition, AMS proposed to require
live poultry dealers to include a signature page in the Disclosure
Document containing a statement informing current and prospective
growers of the potential for violations. The live poultry dealer would
be required to obtain a grower's dated signature on the signature page
and to retain a copy of the dated signature page for 3 years following
expiration, termination, or non-renewal of the poultry growing
arrangement.
In the proposed rule, AMS invited comments on whether the proposed
governance structure is appropriate and sufficient for ensuring the
accuracy of information provided in the Disclosure Document, whether it
is appropriate for dealers, and whether there were other ways it could
sufficiently ensure the completeness and accuracy of the Disclosure
Document. AMS also invited comments on whether it should collect
disclosure data and, if so, how it might use such data to enhance
compliance and accuracy and monitor for possibly deceptive practices.
AMS also proposed to require the principal executive officer or
officers of the live poultry dealer's company to certify accuracy and
compliance and to require dealers to obtain a poultry grower's dated
signature to show receipt.
Governance Structure Adequacy for Accurate Information
Comment: Several commenters suggested USDA conduct audits, with
some commenters also suggesting the audits be random or unannounced.
These commenters indicated conducting audits would help ensure that
live poultry dealers make accurate disclosures.
AMS response: AMS agrees that regular compliance reviews are
important tools to ensure compliance with the Act and regulations
thereunder. Regular AMS audits and compliance reviews encourage live
poultry dealers to put in place the oversight and internal procedures
necessary to ensure compliance. Audits and compliance reviews may also
enhance compliance by catching problems at an early stage, before they
become violations that result in larger scale impacts. They also
enhance AMS's familiarity with industry practices, which enables more
effective regulatory guidance and enforcement. AMS already conducts
regular reviews of live poultry dealers' compliance with regulations
under the Act--as reported in AMS's Packers and Stockyards Division
Annual Report--and AMS intends to incorporate compliance with this
final rule into those existing regular audits.\83\ Currently, a portion
of those compliance reviews are unannounced. Therefore, AMS made no
changes to the proposed rule based on these comments.
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\83\ U.S. Department of Agriculture, Agricultural Marketing
Service--Packers and Stockyards Division. (2020). P&SP 2020 Annual
Report. Retrieved from https://www.ams.usda.gov/sites/default/files/media/PackersandStockyardsAnnualReport2020.pdf.
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Governance Structure Burden on Dealers
Comment: Poultry industry commenters expressed concern about the
necessity and costs of the proposed governance structure and its
potential for creating liability issues. For instance, commenters noted
that live poultry dealers already are required to meet fair dealing
requirements under the Act and have incentive to provide accurate
information to current or potential growers, making the proposed
provisions redundant. Commenters asserted the proposed scheme would
take away dealer flexibility to implement compliance programs that meet
their needs. Commenters also state that the ``principal executive
officer or officers'' of many companies are remote from day-to-day
responsibilities related to the information proposed for inclusion in
the Disclosure Document and are thus not in a position to certify it.
Commenters suggested that AMS underestimated the costs of the proposed
governance framework because it did not take into account its
requirement that firms evaluate their obligations under all regulatory
requirements contained in the Act rather than just those contained in
the proposal. An industry association asserted the agency cannot point
to an authority within the Act that allows it to impose a ``burdensome
and unnecessary governance and audit framework'' on live poultry
dealers. This commenter also argued the proposed governance
requirements are arbitrary and capricious as they reflect a fundamental
lack of understanding of the management structure and governance of
live poultry dealers.
AMS response: Section 401 of the Act requires every poultry dealer
to ``keep such accounts, records, and memoranda as fully and correctly
disclose all transactions involved in his business.'' Under the Act,
the Secretary may ``prescribe the manner and form in which such
accounts, records, and memoranda as fully and correctly disclose all
transactions involved in his business.'' The proposed rule requires
that poultry dealers disclose important information to growers to
prevent deception. Information furnished by dealers under the rule must
be accurate and complete. In order to ensure that dealers can provide
such required information accurately and continuously, AMS prescribes
that dealers must at minimum establish a reasonably designed underlying
governance framework and processes. Without such an established
framework and processes, dealers would be providing this information to
growers in an inconsistent manner that would increase the likelihood of
inaccuracy and incompleteness and hence increase deception.
In building on longstanding, existing requirements under the Act to
maintain books and records, AMS recognizes that additional steps are
necessary owing to the more complex disclosure process contemplated by
this final rule and the reliance that growers will place on it in
avoiding deception. To help strike the right balance between stringency
in the controls necessary to achieve accuracy and the flexibility
necessary to accommodate diverse business operations, AMS takes note of
the experience of--and mandates governing--other Federal regulatory
agencies engaged in setting requirements for companies to provide
disclosures to market participants that depend upon them. It also
considers similar compliance mandates, such as the certification
mandates set forth under the Sarbanes-Oxley Act of 2002 (section 302)
and the provisions of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 named after former Federal Reserve chairman Paul
Volcker, commonly known as the Volcker Rule (section 619). In the case
of those financial and market regulatory reforms, Congress and
regulators saw it necessary to enhance the accountability of senior
officers to achieve the goal of effective and reliable disclosure and
compliance by larger companies for the benefit of smaller, more diffuse
market
[[Page 83249]]
participants. Large-scale financial scandals highlighted the
insufficiency of relying on generic fair dealing or liability
requirements or other market-driven incentives to provide accurate
information. Criminal and civil price fixing in the poultry sector,
including a guilty plea in 2021 by one of the largest poultry
processors and civil consent decrees relating to a conspiracy to
suppress wages under Section 1 of the Sherman Act, 15 U.S.C. 1, and
deception under the Packers and Stockyards Act,\84\ underscores the
presence of similar risks in the poultry sector. The sizable imbalance
of power between poultry processors and growers--including as reflected
in the longstanding series of concerns around retaliation--further
underscores the need for heightened accountability requirements set
forth preemptively through a governance framework as provided for in
this rule.\85\
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\84\ Plea Agreement: U.S. v. Pilgrim's Pride Corp., Feb. 23,
2021, 20-cr-00330-RM, available at https://www.justice.gov/atr/case-document/file/1373956/download. Consent Decree: U.S. v. Cargill Meat
Solutions. Corp., et al. (Sanderson Farms, Inc., Wayne Farms, LLC),
July 25, 2022, 1:22-cv-01821-ELH, available at https://www.justice.gov/opa/pr/justice-department-files-lawsuit-and-proposed-consent-decrees-end-long-running-conspiracy.
\85\ On the other hand, as they facilitate packers and live
poultry dealers' control across the supply chain, contracts can
shift certain risks onto or between producers. See, e.g., Michael
Kades, ``Protecting Livestock Producers and Chicken Growers,''
Washington Center for Equitable Growth (May 5, 2022), available at
https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/; Steven Y. Wu and James MacDonald,
``Economics of Agricultural Contract Grower Protection
Legislation,'' Choices, Third Quarter, 2015: 1-6, available at
https://choicesmagazine.org/choices-magazine/theme-articles/current-issues-in-agricultural-contracts/economics-of-agricultural-contract-grower-protection-legislation; Department of Justice. ``Competition
and Agriculture: Voices from the Workshops on Agriculture and
Antitrust Enforcement in our 21st Century Economy and Thoughts on
the Way Forward.'' May 2012. Available at https://www.justice.gov/atr/page/file/1534736/download; Mary K. Hendrickson, et al., ``The
Food System: Concentration and Its Impacts,'' A Special Report for
Farm Family Action Alliance, May 2021, available at https://farmaction.us/concentrationreport/; C. Robert Taylor, ``Harvested
Cattle, Slaughtered Markets,'' April 27, 2022, available at https://www.antitrustinstitute.org/work-product/aai-advisor-robert-taylor-issues-new-analysis-on-the-market-power-problem-in-beef-lays-out-new-policy-framework-for-ensuring-competition-and-fairness-in-cattle-and-beef-markets/; Peter Carstensen, ``Buyer Power and the
Horizontal Merger Guidelines: Minor Progress on an Important
Issue,'' 14 U. Pa. J. Bus. L. 775 (2012), available at https://repository.law.wisc.edu/s/uwlaw/item/29746.
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The role of the governance framework required by this final rule is
to ensure that the company has in place specific steps that it will
take to comply with this rule. The governance framework is intended to
be strict enough to achieve its intended compliance goal of ensuring
accurate and reliable disclosures that are necessary for growers to
understand, evaluate, and compare contracts and operational risk. Yet
AMS also intended for the requirement to be flexible enough to provide
a framework that works for differently situated businesses. To ensure
they are flexible yet effective measures to promote accuracy in the
provision of disclosures to growers, AMS included language in the rule
providing that the governance framework should be ``reasonably
designed'' to audit the required disclosures and ensure compliance with
obligations under the Act. Consistent with other regulatory frameworks
that ask for forward-looking statements in disclosures, such as the
FTC's Franchise Rule and the Federal securities laws, AMS also intended
for forward-looking projections to be subject to less stringent
standards of precision and verification than past or present factual
matters. For example, the assumptions or beliefs that form reasoned
bases of the projections need to be accurately disclosed, reasonable,
and then reasonably used to make the projections.\86\ Also consistent
with the approach of other regulatory regimes with respect to internal
controls, one goal of the governance provisions is to ensure that live
poultry dealers adopt and follow processes that are appropriately
tailored to the scope and nature of their operation.
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\86\ See generally 15 U.S.C. 78u-5(c); 17 CFR 229.303.
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However, AMS determined that the requirement in proposed Sec.
201.100(f)(2) for the principal executive officer or officers to
certify the governance framework and the accuracy of the Disclosure
Document adequately covers the intended requirement for officers of
this level to be focused on the effectiveness of the governance
framework. AMS concluded that the level of detail in proposed Sec.
201.100(f)(1)(i) about the Disclosure Document audit process was not
necessary, particularly as AMS seeks to balance the need to ensure
reliability of these statements with the burden on the principal
executive officers with respect to particular details of the governance
process. Therefore, AMS removed from the final rule the requirements
proposed in Sec. 201.100(f)(1)(i) for principal executive officers to
audit, test, and review an appropriate sampling of Disclosure
Documents. AMS underscores that the accuracy of the information
disclosed (including the reasonableness of the projections based on the
honest and accurately disclosed assumptions) and the design and
compliance with the governance framework (including the reasonableness
of its design and compliance with it) remain fully enforceable under
the final rule. AMS will also monitor implementation and expects to
examine governance frameworks to assess their effectiveness in
delivering accuracy and reliability of information to growers. In the
event that information is found to be inaccurate or incomplete, AMS
will investigate. Violations may result in issuance of a Notice of
Violation or referral to the Attorney General of the United States for
prosecution pursuant to Section 404 of the P&S Act, 7 U.S.C. 224.
Growers may also bring private cases in response to inaccurate or
misleading disclosures under the Act or under other laws.
Other AMS Actions To Ensure Completeness and Accuracy
Comment: State attorneys general contended the proposed audit
process does not go far enough, stating that the stipulation in
proposed Sec. 201.100(f) that poultry processors establish a
governance framework might present a problem by giving processors too
much control over the governance structure. The State attorneys general
recommended mandating either government or external auditor involvement
in a company's audit and testing program, saying this step would
increase the likelihood that the program is rigorous and that the
financial disclosures provide useful and accurate information to
poultry growers. The commenters also suggested strengthening the
language in proposed Sec. 201.100(f) to provide clearer requirements
for governance systems and increase live poultry dealer accountability
to USDA and to State attorneys general for the initial years after
their implementation. Poultry grower organizations urged AMS to be more
specific about the procedures it will use to ensure the completeness
and accuracy of the disclosure data, suggesting that the final rule
should include more details on the auditing process to ensure accurate
information and prevent circumvention by live poultry dealers.
Commenters recommended measures such as specifying the minimum number
of live poultry dealer audits USDA will conduct per year and requiring
dealers to submit Disclosure Documents annually to PSD. Several
commenters also mentioned other resources that might be a model for
governance actions. A poultry industry trade association said AMS
should simplify and clarify the requirements for a governance
framework, including
[[Page 83250]]
providing details on what ``reasonably designed'' means and on how AMS
will inspect the disclosure and auditing framework.
AMS response: In establishing a governance framework, AMS sought to
balance rigor in internal controls and audit systems so that growers
receive reliable information with flexibility in design to accommodate
compliance by live poultry dealers with different scales and types of
operations. As discussed above, AMS took note of the approach of other
regulatory frameworks \87\ that mandate disclosures and sought to
tailor approaches to compliance to the particular circumstances of the
poultry markets and risks relating to these markets. A ``reasonably
designed'' framework depends on the particular facts and circumstances
of the poultry company and its growers, with larger, more complex
processors adopting more comprehensive systems appropriate to the scope
of their operations. AMS will evaluate the effectiveness of the
governance framework in part through examining how accurate and
comprehensive the disclosures are, and may also examine a dealer's
internal controls and other factors relevant to the facts and
circumstances of the dealer, such as its recent track record of
compliance with relevant laws and regulations.
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\87\ As noted above, AMS has looked to the certification
mandates set forth under the Sarbanes-Oxley Act of 2002 (section
302) and the provisions of the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 named after former Federal Reserve
chairman Paul Volcker, commonly known as the Volcker Rule (section
619).
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AMS views the governance framework as an essential element of
enforceability, as it will provide a framework including an external
audit that will strengthen the accuracy of internal processes. The
governance framework does not in any way absolve the live poultry
dealer of its obligations to provide accurate disclosures to comply
with the rule's requirements, which are designed to correct deception
against growers. Rather, the governance framework is intended to
strengthen those obligations upfront before a disclosure failure
occurs.
Governance frameworks, as a general matter, are not novel. Publicly
listed companies--which several of the largest live poultry dealers
are--must already maintain a range of internal controls related to
their audit and disclosure functions.\88\ The reasons why public-facing
companies must maintain internal control regimes to ensure the quality
of their disclosures are similar to why live poultry dealers that are
subject to this rule must maintain a governance framework--to ensure
that the disclosures to growers are reliable.
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\88\ ``Management's Reports on Internal Control Over Financial
Reporting and Certification of Disclosure in Exchange Act Periodic
Reports,'' SEC Release No. 33-8238 (June 5, 2003) (``SEC Final Rule
2003,'' which required disclosure of material weakness and other
assessments in annual reports for publicly traded securities).
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AMS also intends to improve compliance over time through compliance
reviews, industry training, and other mechanisms, including enforcement
where necessary. Repeated compliance violations may necessitate
proportionate agency enforcement and deterrence actions. In most
circumstances, and as would expected to be the case in the enforcement
of good faith compliance with this final rule, AMS initially delivers a
Notice of Violation that provides the live poultry dealer with the
opportunity to engage with AMS around the nature of the violation and
take compliance steps necessary to cure the violation before formal
remedial actions are commenced. AMS also has provided, in this final
rule and the associated form, additional detail regarding the methods
for calculating certain disclosure data, which we believe will enhance
completeness and accuracy of data.
AMS Collection of Disclosure Data
Comment: In response to AMS's request for comments on whether it
should collect disclosure data and how it might use such data to
enhance compliance and monitor for potential deceptive practices,
poultry grower groups and farmers unions expressed support for data
collection. The commenters said this data would help inform producers,
lenders, and regulatory authorities, given the industry's consolidation
and geographic monopolistic environments. Commenters recommended AMS
require dealers to annually disclose the data they are calculating and
disclosing within the Disclosure Document, especially regarding grower
incomes and grower cost. The commenters also suggested that USDA
dedicate staff to analyzing this data in the context of industry
consolidation and fair competition to identify patterns early on that
may require corrective or enforcement action.
AMS response: AMS agrees that data-driven approaches can be
expected to provide valuable information for monitoring compliance with
this rule and with other rules under the Act. AMS notes that it has the
authority to request Disclosure Document data under existing
requirements in the Act. AMS will further consider the extent to which
some Disclosure Document data may be incorporated into annual report
requirements to AMS. Thus, there is no need for this rule to contain a
particular requirement for submitting the data to AMS. Therefore, AMS
made no changes to the rule as proposed based on these comments.
Requirement of Dealers To Certify Documents
Comment: Several poultry and meat industry trade associations urged
AMS to omit the requirement for certification by an executive officer.
One commenter argued that expecting this officer to be in a position to
certify the required information is unreasonable because the principal
officer or officers of many companies have responsibilities for many
areas in addition to live poultry and contract with thousands of
growers, and because much of the information produced in conjunction
with a Disclosure Document would be maintained at the local poultry
complex level with multiple layers of management between that level and
the ``principal executive.'' Another commenter said a poultry grower
could have recourse if an agreement made deceptive statements
regardless of whether someone certifies the information and that
including this requirement appears to be motivated by an effort to
establish individual liability for what should be a commercial
contracting issue.
AMS response: AMS refers to the response provided earlier on the
governance framework and the rationale for chief executive officer
(CEO) certification. In multiple circumstances, Congress and regulators
saw it necessary to enhance the accountability of senior officers to
achieve the goal of effective and reliable disclosure and compliance by
larger companies for the benefit of smaller, more diffuse market
participants. CEOs set the ``tone at the top,'' which is critical for
fostering a culture of compliance at companies.\89\ Additionally, AMS
already requires signatures on required annual reports (see 9 CFR
201.97), typically by the CEO or another high-ranking official,
creating a precedent for the certification as proposed. In addition,
CEOs may rely on sub-certifications by relevant officers
[[Page 83251]]
or senior officials, thus reducing the burden CEOs may face while still
creating the appropriate level of executive engagement to underscore
the importance of compliance and address any issues early and
effectively. AMS agrees that recourse exists against live poultry
dealers for deceptive practices under the Act and for violations of the
final rule regardless of the certification. Violations may result in
issuance of a Notice of Violation or referral to the Attorney General
of the United States for prosecution pursuant to Section 404 of the
Act, 7 U.S.C. 224. Growers may also bring private cases in response to
inaccurate or misleading disclosures or bait-and-switch tactics under
the Act or under other laws. The purpose of the governance framework
and certification requirement is to minimize the need to rely on legal
recourse in order to obtain accurate, reliable disclosure, and thus to
enhance the reliability of the information provided to growers at the
outset. Therefore, AMS made no changes to the rule as proposed based on
these comments.
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\89\ See, e.g., William C. Dudley, ``Enhancing Financial
Stability by Improving Culture in the Financial Services Industry,''
Federal Reserve Bank of New York, October 20, 2014, available at
https://www.newyorkfed.org/newsevents/speeches/2014/dud141020a;
Group of Thirty, ``Banking Conduct and Culture: A Call for Sustained
and Comprehensive Reform,'' 2015, available at https://group30.org/publications/detail/166.
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Requirement of Growers To Sign Documents
Comment: Live poultry dealers noted that there may be instances in
which obtaining a grower signature is not possible, such as grower
unavailability or refusal to sign. These commenters indicated it is
appropriate to have other means available for the live poultry dealer
to verify delivery of the Disclosure Document to the grower in these
instances.
AMS response: AMS recognizes that some growers may not sign the
form verifying that they received the Disclosure Document, for reasons
unrelated to whether the live poultry dealer made reasonable efforts to
obtain such signature. AMS intends to place the requirement for
disclosure and delivery on the live poultry dealer, and not on the
grower. If the grower refuses to sign the Disclosure Document, such
decision should not affect whether the live poultry dealer has
fulfilled its obligations. Accordingly, in the final rule, AMS revised
the delivery verification provision in Sec. 201.102(g)(2) to allow
live poultry dealers engaged in the production of broilers to obtain
alternative documentation to evidence delivery and that best efforts
were used to obtain grower receipt. The rule does not limit the mode of
delivery, whether by regular mail, certified mail, registered mail,
overnight mail, email, facsimile, or personal service, provided that
the dealer obtains and maintains evidence that the grower or
prospective grower received the Disclosure Document in the required
timeframe and that best efforts were made to obtain grower receipt. AMS
expects that best efforts will include personal communications with the
grower. The revised provision requires live poultry dealers engaged in
the production of broilers to document and certify in their records
that delivery occurred, as well as by what method the delivery took
place.
H. Contract Provisions on Variables Controlled by Live Poultry Dealer
Current Sec. 201.100(c) specifies the contents of live poultry
dealer contracts with poultry growers. This subsection requires dealers
to specify the duration of the contract and conditions for its
termination by each of the parties, all terms relating to the poultry
grower's payment, and information about a performance improvement plan
for the grower, if one exists. In the proposed rule, AMS proposed to
redesignate Sec. 201.100(c) as Sec. 201.100(i) and amend it to
require dealers to specify the minimum number of placements to be
delivered to the grower's farm annually in each year of the contract,
as well as the minimum stocking density of each placement. In the final
rule, the existing requirements at Sec. 201.100(c) are retained for
all live poultry dealers, while the minimum placement and stocking
density requirements are at Sec. 201.102(h) and apply only to live
poultry dealers engaged in the production of broilers.
Utility of Proposed Requirements in Addressing Need for Transparency
Comment: Several live poultry dealers and industry groups expressed
opposition to the proposed requirements to specify a minimum number of
flocks annually and a minimum stocking density for each flock. These
commenters contended that requiring these minimum values would make it
harder to adjust supply chains for factors largely outside of the
parties' control, take away dealer flexibility to adjust production
plans as market conditions change, and lead to substantial costs
associated with changing existing contracts to incorporate this
requirement. A commenter suggested that the Disclosure Document provide
tentative projections regarding flock placements rather than guaranteed
minimums. Conversely, growers and grower groups expressed support for
these guaranteed minimums, saying they would allow for more accurate
and predictable income projections.
AMS response: AMS intends for disclosure of these guaranteed
minimums to improve the competitive environment for poultry growers by
allowing growers to make decisions based on minimum flock offerings
disclosed by different dealers. AMS recognizes that dealers may wish to
adjust flock placements or density based on external factors, and this
rule does not prevent such adjustments. The rule also does not prohibit
setting guaranteed minimums that are lower than projected placements to
allow for such adjustments. Indeed, should dealers wish to indicate
that the guaranteed value is zero, this rule would not prohibit such a
disclosure, provided that such disclosure is accurate and not
misleading. The purpose of this rule is to provide the information that
growers need regarding flock placements and density to enable them to
make decisions regarding their farm operations and manage risks, and
AMS underscores the views of growers, farm bureaus, and others that
minimum flock placements and stocking density are valuable to growers.
Minimum flock placements are different from tentative placements, in
that they provide growers with information well in advance of the
actual placements, which aligns better with longer-term obligations
that farmers must make with respect to borrowing and capital
investment, equipment investment, labor contracts, and other longer-
term arrangements on the farm. Therefore, AMS made no changes to the
rule as proposed based on these comments.
Alternative Approaches
Comment: Several non-profit organizations said that AMS should
require disclosure of the maximum amount of money that could be added
to or deducted from the contract's stated base price within the live
poultry dealer's tournament ranking formula in addition to the
guaranteed minimum placement number and stocking density of flocks,
saying this information would be useful in allowing poultry growers to
better predict their income based on the minimum flock placement and
stocking density guarantees.
AMS response: The poultry growing arrangement will dictate maximum
pay variance to the extent it exists. Because additions and deductions
from base pay are generally associated with deviations from average
performance, the range of payments for individual settlements can
fluctuate. That is, to the extent that a minimum and maximum exists,
its occurrence is rarely observed. For the purposes of projection, the
disclosure of payment quintiles or mean and standard deviation provided
in Sec. 201.102(d) provides substantially more data points useful to
assess payment variance
[[Page 83252]]
compared to maximum and minimum pay terms, as quintiles show pay broken
down into five bands. Live poultry dealers will only report a mean and
standard deviation if there are nine or fewer growers. This reporting
will provide a measure of an expected outcome and an expected
volatility around that outcome. The minimum and maximum pay terms would
not give an expected outcome or volatility measure. AMS acknowledges
some growers have expressed concerns about excessive pay variability.
As noted above, AMS is considering rulemaking for the purpose of more
direct changes to the poultry grower payment systems. That is outside
of the scope of this rule. Therefore, AMS made no changes to the rule
as proposed based on these comments.
Comment: A farm bureau suggested AMS conduct additional rulemaking
in relation to stocking density to account for changes in target
weights after birds have been placed, citing examples of poultry
growers who were stocked at an appropriate density but lost significant
income after adjustments in bird pick-up timing. This commenter and
other farm bureaus supported grower compensation for loss of income
when target weights are modified after placement.
AMS response: The issue raised by the commenters is a concern in
that the growers relied on the contract terms when entering the
agreement and subsequent revisions to target weights result in
financial losses that presumably would not have occurred under the
original terms. The remedy proposed by the commenters, however, is not
within the scope of this rule, which is focused on increasing
transparency in live poultry dealer communications with poultry
growers. If a live poultry dealer deceives a grower through a ``bait
and switch'' agreement as described, remedies may exist through
enforcement by the USDA and DOJ, or in private actions by the grower in
Federal court. AMS encourages growers to report specific instances of
potential occurrences directly to AMS. Growers may also file a
complaint at farmerfairness.gov or by calling 1-833-DIAL-PSD (1-833-
342-3773) if they suspect a violation of the Act or any other Federal
law governing fair and competitive marketing, including contract
growing, of livestock and poultry. Therefore, AMS made no changes to
the rule as proposed based on these comments.
Other Comments About Contract Provisions
Comment: A poultry grower group suggested AMS require live poultry
dealers to provide enough flocks to allow poultry growers to pay their
debts and be profitable. The commenter also suggested AMS require
contracts with growers to extend to the term of the loan. Several
farmers unions recommended that AMS modify the contract provisions to
clearly state what recourse poultry growers have under the Act if live
poultry dealers fail to meet the contract terms. A farm bureau noted
that under the current contracting system, companies promise profits to
entice growers into contracts that offer little or no guarantee for
success or profit, and growers have limited clout to negotiate for
better contract terms or treatment. This commenter explained that
grower contracts are typically flock to flock with no commitments
regarding future flocks, number of birds per flock, quality of birds
placed, and feed delivered, and that they allow companies to cancel
contracts at will. Instead, the commenter contended that contracts
should last as long as the commitment the grower has with their
financial institution. A poultry grower also recommended that the
proposed rule require dealers to present contracts that endure for the
entirety of a grower's loan to give growers more security when deciding
to invest start-up capital and to remedy issues that arise when a
dealer refuses to extend a contract unless a grower makes certain
modifications.
AMS response: AMS acknowledges these concerns raised by growers. As
noted above, AMS is considering rulemaking for the purpose of more
direct changes to the poultry grower payment systems. AMS also welcomes
growers and others to contact us directly regarding these matters.
Growers may file a complaint at farmerfairness.gov if they suspect a
violation of the Act or any other Federal law governing fair and
competitive marketing, including contract growing, of livestock and
poultry. However, these items are outside the scope of this disclosure-
based regime, which focuses on increasing transparency in live poultry
dealer communications with poultry growers, not on requiring contracts
to include specific guarantees or establishing requirements related to
their duration. Therefore, AMS made no changes to the rule as proposed
based on these comments.
I. Transparency Requirements for Poultry Grower Ranking Systems
AMS proposed to create a new Sec. 201.214--Transparency in poultry
grower ranking pay systems (Sec. 201.104--Disclosures for broiler
grower ranking system payments--in this final rule) specifying the
recordkeeping and disclosure requirements for live poultry dealers
using a poultry grower ranking system to calculate grower payments.
Recordkeeping and Maintenance
AMS proposed in Sec. 201.214(a) to require live poultry dealers
who calculate payments under poultry grower ranking systems to produce
and maintain records showing how certain inputs were distributed among
participants. In proposing these recordkeeping and maintenance
requirements, AMS intended to ensure that USDA or any other party with
the proper legal authority can collect records for review during an
investigation or legal action. In the proposed rule, AMS proposed to
require dealers to retain records relating to the distribution of
inputs to tournament participants for 5 years. AMS invited comments
about whether this record maintenance period is appropriate. AMS also
requested comments on the burdens these recordkeeping requirements
create for dealers.
Comment: Groups representing poultry growers expressed support for
a 5-year retention period for records, suggesting such record retention
would allow for a higher degree of accountability and compliance
enforcement in disputes over unfair distribution of inputs by live
poultry dealers. These commenters contended burdens on dealers would be
minimal, as records would be maintained electronically, and the
industry already provides much of the required information to shared
data collection services. A live poultry dealer argued that some
information AMS proposed for dealers to provide is sensitive and
proprietary, saying that, for example, grower payments may provide
information about costs and live-side operations; breeder information
might deal with strategic changes in breed or efforts to deal with
chick health; and details about feed outages or other internal
operations might reveal proprietary information that would adversely
and unfairly impact the live poultry dealer's competitive position.
AMS response: AMS agrees with the poultry grower commenters and
retains 5 years as the appropriate length of time for record retention
purposes for this
[[Page 83253]]
rule. Although most regulations under the Act provide for 2-year record
retention, 9 CFR 203.4(c) allows for an extension of the record
retention period when investigations or proceedings are underway. AMS
is adopting a 5-year retention requirement here principally to enable
PSD to enforce the disclosure requirements that provide growers with
transparency into the past 5 years of revenues, which enables growers
to see trends over time. To determine whether the required disclosures
are accurate or not, PSD will need to be able to review at least 5
years' worth of records.
Regarding concerns about sensitive proprietary information raised
by a live poultry dealer, proprietary information such as poultry
genetics, poultry feed blends, trade secrets, or other proprietary
information not contained in the grower contracts are not required to
be disclosed and may thus remain restricted. Growers' need for relevant
information with which to make informed decisions weighs heavily in
favor of the disclosures specified in this final rule because they
relate to the manner in which the poultry company treats growers under
its poultry growing arrangements and enable broiler growers to monitor
some aspects of the live poultry dealer's performance under the
contracts. Moreover, the topics contemplated for disclosures to
growers--such as grower compensation and policies and procedures on
matters of interest to growers (sick chicks, feed complaints, sale of
farm policies, etc.)--have limited proprietary value.
Accordingly, AMS made no changes to the rule as proposed based on
these comments.
Placement Disclosure
AMS proposed in Sec. 201.214(b) to require live poultry dealers to
provide certain information about the flock placed with the grower
within 24 hours of its placement on the grower's farm. This information
would include the flock's stocking density, expressed as the number of
poultry per facility square foot; the names and ratios of breeds of the
flocks delivered; the ratios of male and female birds in the flock if
the sex of the poultry had been determined; the breeder facility
identifier; the breeder flock age; information regarding any known
health impairments of the breeder flock and of the poultry delivered to
the poultry grower; and what, if any, adjustments live poultry dealers
will make to grower pay to reflect any of these inputs. AMS requested
comments on how well the proposed requirement to supply input
information at the time of placement responds to grower requests for
such information; whether the required information is useful to a
grower's operation; what burdens or challenges dealers might encounter
in collecting information for placement disclosures; and whether the
placement disclosure requirement would affect live poultry dealers'
business practices.
Comment: Farm bureaus and groups representing poultry growers
supported the requirement to supply input information after placement,
saying the information is critical to poultry grower performance.
Several groups suggested additional systems for complaints and appeals
are needed, saying poultry growers often do not have a fair way to
report and resolve issues and that transparency alone does not guard
against circumstances in which growers consistently receive poor-
quality inputs or face repeated unfair treatment.\90\
---------------------------------------------------------------------------
\90\ See, e.g., Campaign for Contract Agriculture, Rural
Advancement Foundation International--USA, ``Comment on AMS-FTPP-21-
0044: Transparency in Poultry Grower Contracting and Tournaments''
(received Aug. 23, 2022), available at https://www.regulations.gov/comment/AMS-FTPP-21-0044-0479; Institute for Agriculture & Trade
Policy, ``Comment on AMS-FTPP-21-0044: Transparency in Poultry
Grower Contracting and Tournaments'' (received Aug. 1, 2022),
available at https://www.regulations.gov/comment/AMS-FTPP-21-0044-0110; Stone Barns Center for Food & Agriculture, ``Comment on AMS-
FTPP-21-0044: Transparency in Poultry Grower Contracting and
Tournaments'' (received Aug. 4, 2022), available at https://www.regulations.gov/comment/AMS-FTPP-21-0044-0139; Animal Welfare
Institute, ``Comment on AMS-FTPP-21-0044: Transparency in Poultry
Grower Contracting and Tournaments'' (received Aug. 1, 2022),
available at https://www.regulations.gov/comment/AMS-FTPP-21-0044-0109.
---------------------------------------------------------------------------
AMS response: Mandating particular systems for complaints and
appeals would not be within the scope of this transparency rulemaking.
However, AMS agrees that poultry growers should be aware of avenues for
complaints and appeals where they exist. Consistent with AMS's
experience regulating the poultry industry, commenter responses have
identified circumstances where live poultry dealers commonly exercise
higher levels of discretion with respect to the interaction between the
dealers and the growers. In such circumstances, absent disclosures of
policies and procedures that may exist, broiler growers are unable to
understand and evaluate how live poultry dealers may handle those
circumstances, which can and do affect growers' financial outcomes
under the poultry growing arrangement. These circumstances--sick chicks
and disasters, feed issues, and appeal procedures--were the subject of
questions on which AMS requested comment in the proposed rule.
Therefore, AMS added a new provision at Sec. 201.102(c)(4) of the
final rule requiring live poultry dealers to disclose policies and
procedures on increased layout time; sick, diseased, or high early-
mortality flocks; natural disasters; weather events, or other events
adversely affecting the physical infrastructure of the local complex or
the grower facility; other events potentially resulting in massive
depopulation of flocks, affecting grower payments; feed outages
including outage times; and grower complaints relating to feed quality,
formulation, or suitability, as well as any appeal rights arising out
of these events.
In AMS's experience fielding and investigating grower complaints,
some live poultry dealers will remove sick, diseased, and high early-
mortality flocks from the tournament settlement group and provide
payment calculated separately. Similarly separate treatment will
sometimes be made for instances of sick chicks, depopulation events,
natural disaster, weather events, or other events affecting the
physical infrastructure of the local complex or grower facility, as
many live poultry dealers provided for during the COVID-19 pandemic or
during the ongoing series of avian bird flu outbreaks.91 92
However, these practices are not uniform and are not necessarily
provided for in written contracts.\93\
---------------------------------------------------------------------------
\91\ A typical practice in such circumstances is to pay growers
based on their previous five flock average to ameliorate losses. One
such circumstance is detailed in ``What lessons can poultry
producers learn from extreme weather events? '' ThePoultrySite.com,
March 02, 2022, available at https://www.thepoultrysite.com/articles/what-lessons-can-poultry-producers-learn-from-extreme-weather-events (last accessed April 2023).
\92\ AMS's rule under Sec. 201.102 (c)(3) would require dealers
to disclose to growers its policies and procedures, as well as any
appeal rights arising from four types of important events, including
``Natural disasters, weather events, or other events adversely
affecting the physical infrastructure of the local complex or the
grower facility.''
\93\ A 2007 survey by USDA found that 17.9% of broiler contracts
included specific provisions for catastrophic payments, see James
MacDonald, ``The Economic Organization of U.S. Broiler Production,''
USDA Economic Information Bulletin 38 (June 2008).
---------------------------------------------------------------------------
How live poultry dealers respond to feed outages, including outage
times, as well as to grower complaints relating to feed quality,
formulation, or suitability, also vary widely, and commonly depend to a
high degree on the approach that field agents for live poultry dealers
take in their particular complex. AMS has received a range of
complaints over the years relating to differential treatment between
growers within complexes relating to these concerns. Live poultry
dealers have indicated in the past to AMS that they provide growers the
opportunity to appeal the determinations or actions of
[[Page 83254]]
local agents, but such availability has not been consistent and is
subject to a high degree of opacity.
This rule provides up-front clarity for growers on how the live
poultry dealer will deal with such circumstances. If live poultry
dealers choose not to maintain such policies and procedures, growers
would benefit knowing this up front during the contracting process.
However, this rule is focused on providing transparency regarding
the policies and procedures that live poultry dealers may have, whether
formal or in practice. Requiring additional systems for complaints and
appeals was not proposed and would not be a logical outgrowth of the
proposed rule. In future rulemaking, AMS may consider additional steps
to address the maintenance of certain policies or procedures.
Comment: Several organizations suggested AMS require live poultry
dealers to disclose input quality variables and feed discrepancies by
house on each poultry grower's farm, preventing live poultry dealers
from using averaging to hide variables and discrepancies on settlement
sheets. The commenters said, with this addition, the placement and
settlement disclosure requirements would give poultry growers more
transparency in accessing information about their flocks, other inputs,
and their performance in the context of their complex.
AMS response: Per-house disclosure would represent a substantial
increase in recordkeeping burden. In addition, this disclosure would
likely provide only a minor benefit, as metrics relating to payment are
required to be provided to poultry growers on a farm-wide basis, and
facility-based input disclosures are thus likely to create confusion
among growers. Accordingly, AMS is not requiring disclosure at the
house level.
Comment: Farmers unions and groups representing poultry growers
expressed concern about variance in feed delivered to grower farms.
These commenters urged AMS to require live poultry dealers to disclose
information about the quantity and type of feed delivered throughout
the flock's growout. Commenters said live poultry dealer errors in the
type or amount of feed delivered, even with no feed disruption, can
have significant ramifications for flock performance.
AMS response: As discussed above, AMS recognizes the need to
provide transparency to address risks of deception in circumstances
where dealer discretion, opacity, and other information asymmetries are
present in the poultry growing arrangement. As highlighted by the
comments, growers have repeatedly expressed concerns regarding feed
quality and type, as well as delivery and disruption thereof. Section
201.102(c)(4)(v) and (vi) of the final rule requires disclosure of
dealer policies and procedures relating to feed outages, including
outage times, and grower complaints about feed quality, formulation, or
suitability. Required disclosures also include policies and procedures
around any appeals processes on such matters.
AMS considered an option to require live poultry dealers to
disclose the feed mix, or recipe, to growers, but determined this
option is not appropriate because the feed mix varies at different
stages of the growout and it is a closely protected formula, treated as
proprietary information by live poultry dealers. Also, AMS determined
that providing additional disclosures about feed delivered throughout a
flock's growout would involve overwhelming complexity, particularly due
to the dynamic nature of feed contents and quantities within a given
growout period. Moreover, these disclosures would have limited
usefulness.
AMS acknowledges these commenters' concerns about transparency and
responsiveness regarding feed quality and delivery issues and that
particular instances of concern may arise but concludes that the
potential benefits of the requested disclosures would not justify the
costs.
Ongoing disclosure of the actual feed mix and delivery, as noted
above however, may be too burdensome given the proprietary and fluid
set of practices that live poultry dealers use in providing feed. It
may also be overbroad, as a focus on policies and procedures will
provide information that growers need to better manage the specific
risks they encounter, while providing greater flexibility for live
poultry dealers to develop the systems that work best for their company
and their growers. AMS will continue to monitor these areas and expects
to use the additional transparency provided by the disclosures to
develop more tailored educational, outreach, or regulatory responses.
Comment: Several poultry industry representatives requested that
AMS clarify what constitutes a health impairment requiring disclosure.
A commenter said it is unclear whether AMS intended the provision
requiring disclosure of health impairments to encompass impairments
other than recognized and diagnosed poultry diseases, while another
said the current proposal is vague enough to leave significant room for
legal disputes over whether a condition affected a grower's
compensation. Several animal welfare groups said AMS should strengthen
the disclosure requirements related to health issues. A commenter said
integrators should have to disclose known health impairments at least
24 hours before the flock is placed with the grower, rather than within
24 hours of placement, because earlier notice would give the grower
more time to prepare and would ensure a fairer marketplace. This
commenter also suggested requiring integrators to track disease and to
inform other poultry growers with birds from the same facility of
problems with birds from a particular breeding facility or hatchery, so
the entire affected community of poultry growers will be better
prepared for disease outbreaks. Other commenters suggested that AMS
require additional health-related disclosures, including any known
health issues present in the flock being delivered, such as infections,
and any past veterinary care rendered to the chicks, saying these extra
disclosures would better allow them to provide suitable veterinary care
and may lead to better growth outcomes and fewer deaths.
AMS response: AMS concluded that disclosure of known health
impairments is the appropriate standard, and ``health impairments'' as
generally understood provides an appropriate context for
classification. AMS does not believe it is appropriate to limit the
standard, as flock health impairments affect certain flocks, breeds,
and growouts differently. Health impairments may affect growout
management, performance, pay, or other relevant factors. Often,
specific input deliveries may not be decided 24 hours in advance, as
logistics, weather, transportation, and other factors may influence
distribution. Therefore, AMS made no changes to the rule as proposed
based on these comments.
Comment: Multiple farmers unions and groups representing poultry
growers said live poultry dealers should disclose a breeder flock
identifier in addition to a breeder facility identifier. A commenter
said growers could use this data to support an appeal if they are
punished for poor growth after receiving a diseased or lower-quality
flock and to obtain the breeder's flock-breeding methods.
AMS response: AMS acknowledges the commenters' interest in the
disclosure of breeder flock identifiers. However, it concluded that
this additional information is not needed because individual breeder
facilities are generally populated and depopulated all in and all out.
Breeder facility identifiers would thus reflect the same information in
breeder flock identifiers.
[[Page 83255]]
Therefore, AMS made no changes to the rule as proposed based on these
comments.
Comment: Numerous non-profit organizations requested that AMS
require live poultry dealers to provide historical breed performance
and best management practice recommendations disaggregated according to
important factors, such as breeder flock age and flock pickup date, and
to keep this data archived for 10 years.
AMS response: Virtually all live poultry dealers provide manuals to
growers outlining best management practices. In addition, historical
performance is currently publicly available on breeder internet sites.
Given the widespread availability of this information, AMS made no
changes to the rule as proposed based on these comments. AMS may
reevaluate in the event that industry practices shift away from
voluntarily providing this information.
Comment: Several non-profit organizations said AMS should require
live poultry dealers to disclose data about the optimal pickup age for
a flock's breed on flock placement sheets. Some of these commenters
also suggested AMS should require integrators to disclose the average
feed conversion efficiency of flocks hatched from breeder flocks of
that age in addition to requiring disclosure of breeder flock age on
delivery. The commenters said this requirement would allow poultry
growers to compare their own performance to a more accurate flock
efficiency performance expectation.
AMS response: Weight, not number of days, is the target for bird
harvest and is generally included in most settlements. As target weight
is readily known to poultry growers, along with the average number of
days to achieve the target, it is unnecessary to require this readily
known information in the Disclosure Document. Accordingly, AMS is not
requiring live poultry dealers to provide information related to the
optimal pickup age for a flock's breed. While AMS is considering action
targeting live poultry dealers who allow birds to stay in houses beyond
their target weight, that falls outside the scope of this disclosure-
based regime. AMS further notes the commenters' views regarding the
value of benchmarking performance but is not prepared at this time to
adopt such a requirement in this rule. AMS also notes that USDA makes
available a range of resources, in particular Extension expertise, to
assist growers in better analyzing their performance utilizing
different inputs, and notes the inclusion of contact information for
USDA resources in the final rule.\94\ AMS will monitor implementation
and may examine additional tools for assisting growers in improving
their performance.
---------------------------------------------------------------------------
\94\ See, e.g., Jennifer Rhodes, Extension Educator, et al,
University of Maryland, ``Broiler Product Management for Potential
and Existing Grower,'' Table 1 and 2, available at Poultry Budgets,
Enterprise Budgets, Agricultural and Resource Economics, North
Carolina State University Extension, https://cals.ncsu.edu/are-extension/business-planning-and-operations/enterprise-budgets/poultry-budgets/ (last accessed April 2023).
---------------------------------------------------------------------------
Comment: Commenters representing the poultry industry said the
information to be required on flock placement would burden live poultry
dealers and is unnecessary because of a lack of evidence showing it
would help poultry growers in managing their farms. Commenters also
said providing stocking density information is not necessary because
live poultry dealers will place flocks at the optimal density for the
best return.
AMS response: Broiler growers, farm bureaus, and many other
commenters widely supported flock placement disclosures because these
disclosures assist growers in planning and operating their farms,
managing their financial risks, and negotiating with live poultry
dealers over better contractual execution, among other reasons. AMS has
concluded that, for live poultry dealers engaging in the production of
broilers, the burden of providing the flock placement disclosures,
including disclosures on stocking density, would be minimal and the
benefit to broiler growers substantially outweighs the impact to
dealers. Further, dealer decisions on stocking density may also be
influenced by other factors beyond optimal returns to growers, such as
responses to market changes, which mitigates in favor of providing
additional transparency by live poultry dealers, the entities
responsible for making those decisions.
Comment: Several poultry and meat trade associations said live
poultry dealers sourcing birds from a third party may not have access
to some data the proposed rule would require them to disclose with
placement, such as breeder flock age. Commenters also mentioned that
third-party breeder operations might consider sourcing information to
be proprietary or subject to a nondisclosure agreement, suggesting AMS
address how live poultry dealers should make placement disclosures when
they do not have required information or when law or contract prohibits
them from providing it.
AMS response: Based on AMS experience, under most poultry growing
arrangement contracts, live poultry dealers are responsible for
providing the birds to the growers. Live poultry dealers may also be
expected to already have State contract law obligations relating to
their performance under the contract. Based on AMS's experience,
dealers sourcing chicks from third parties already monitor the inputs
provided by those parties. Growers need to know the information being
required in this rule, such as the breeder flock age and known health
impairments of the breeder flock, and the live poultry dealer, not the
grower, is best positioned--indeed, is the only party positioned--to
require, via contract, that the third-party provide the information
necessary to comply with the rule. Nor are the obligations especially
burdensome. For example, regarding health impairments, AMS is requiring
only disclosure of ``known health impairments'' of the breeder flock or
of the poultry delivered, and the live poultry dealer has a range of
ways to ask the third-party input supplier to provide that information,
including contractual guarantees, indemnifications, attestations, or
other means all of which are already commonly used in livestock
transactions to ensure animal health and food safety.
Whether the live poultry dealer is sourcing the inputs internally
or via a contractual arrangement with a third party, it is ultimately
the live poultry dealer that is providing the inputs to the grower
under the poultry growing arrangement and is responsible for not
engaging in a deceptive practice. AMS has discussed in other parts of
this final rule why the information being requested about the inputs is
not confidential or proprietary. Therefore, AMS made no changes to the
rule as proposed based on these comments.
Comment: Several industry groups opposed the requirement proposed
in Sec. 201.214(b)(7) to disclose any adjustments the live poultry
dealer intends to make due to the other factors covered in placement
disclosures. One commenter said live poultry dealers would not be able
to disclose adjustments at the beginning of a flock because it is
impossible to predict the financial impact of factors that may affect
live birds in advance. This commenter said it is more appropriate for
live poultry dealers to make pay adjustments after a flock settles
based on comparisons with historical data.
AMS response: Some live poultry dealers may be unable to predict
the exact financial impact of those factors in any specific flock
delivery to a grower,
[[Page 83256]]
but these are contracted-for payments that should be legitimately based
upon factors known to both parties. Otherwise, the live poultry dealer
may deceptively manipulate the contract payments based on withheld
information because the live poultry dealer controls all the tools used
to calculate payments. Of course, live poultry dealers may be able to
predict some of the financial consequences of a contract, or the live
poultry dealer may want to create additional grower incentives specific
to one flock that may take the form of a pay adjustment. In AMS's
experience reviewing contracts, payment formulas can be complicated.
However, AMS included the requirement to disclose any adjustments that
may be made based on the factor in the settlement disclosure to help
growers to recognize and manage risks, and to prevent adjustments that
were opaque or pose risks of deception to the grower.
The rule does not require any adjustments, and only requires live
poultry dealers to disclose adjustments that can be known prior to
placement and that the live poultry dealer could apply, for example a
particular adjustment formula, process, or approach. The specific final
amount of adjustment need not be predicted, but if the live poultry
dealer knows that the inputs will likely result in payment being
adjusted upward or downward in an unknown amount, and particularly if
it knows how or under what conditions that will occur, it should
disclose that information to a grower to allow the grower to better
manage their growout strategies; plan for the payment they are
expecting to receive upon settlement; and avoid being confused, misled,
or otherwise deceived about how their performance under the contract
will be compensated. Live poultry dealers remain free to make the
actual contractually agreed upon adjustments after settlement based on
flock performance. Therefore, AMS made no changes to the rule as
proposed based on these comments.
Comment: Groups representing poultry growers supported the proposed
placement disclosure requirements. These commenters said the
requirements would ensure more transparency by integrators and help
growers in areas such as flock management and financial planning. A
live poultry dealer said much of the proposed placement disclosure
information pertains to factors that do not vary significantly from
grower to grower, saying any natural variation in inputs is expected to
even out over time and providing the information would place undue
emphasis on single inputs rather than factors such as the grower's
skill, dedication, and hard work.
AMS response: Input variation has not been the subject of external
study because of the proprietary nature of the data available, but it
has been the source of repeated concerns raised by growers for many
years.\95\ The persistence of these grower complaints suggests that
making this information available to growers to measure, monitor, and
adjust as they may see fit is worth the modest cost to live poultry
dealers because it will reduce the opacity and risks of deception with
respect to their payments. With that additional transparency, growers
will be able to determine the relative emphasis to be placed on single
inputs versus other factors, such as skill, dedication, or hard work,
which may help them adjust their growout practices to match. To the
extent variations do even out over time, growers will be in a better
position to recognize those trends and make their own determinations on
the importance of inputs versus other factors, thanks to this rule's
enhancement of transparency tools. If input factors do not in fact vary
significantly from grower to grower, the burden of disclosure by the
live poultry dealer remains relatively light.
---------------------------------------------------------------------------
\95\ See, e.g., Transcript, United States Department of Justice,
United States Department of Agriculture, Public Workshops Exploring
Competition in Agriculture: Poultry Workshop, May 21, 2010, Normal,
Alabama; Leonard, Christopher, The Meat Racket (2014).
---------------------------------------------------------------------------
Comment: Industry groups contended the placement disclosure
requirements would impose a significant administrative burden, such as
requiring capital investments to overhaul their software to provide the
required data. One commenter said the discussion of input distributions
in the preamble to the proposed rule relied on anecdotal reports rather
than actual data or evidence, making the proposed provisions arbitrary
and capricious.
AMS response: AMS has conducted an extensive cost-benefit analysis
for this rule, available under the regulatory analyses section below,
and believes that the burden of compliance is relatively modest. AMS
investigations and reviews of information sharing services and
consultations with experts from the Agricultural Research Service, in
addition to AMS's own subject matter experts, supervisors, and auditors
with many years of experience in working with growers and auditing live
poultry dealers all indicated that most live poultry dealers maintain
this information already, and indeed report much of it to information
sharing services.
AMS acknowledges that external analyses of poultry inputs generally
lack a ranking system context, but the proprietary nature of the
relevant data makes quantitative academic and other external analysis
nearly impossible. Even with the lack of context, peer reviewed
research supports the supposition that input differentiation can affect
biological outcomes.\96\ AMS is relying on the longstanding concerns of
growers and its own experience as the industry's regulator to warrant
placement disclosure requirements. Accordingly, AMS made no changes to
the proposed rule based on these comments.
---------------------------------------------------------------------------
\96\ E. David Peebles, et al., ``Effects of Breeder Age and
Dietary Fat on Subsequent Broiler Performance. 1. Growth, Mortality,
and Feed Conversion.'' Poultry Science 78.4 (1999): 505-51; J.B.
O'Neill, ``Relationship of Chick Size to Egg Size and its Effect
Upon Growth and Mortality.'' Poultry Science 29 (1950):774; C.L.
Wyatt, W.D. Weaver Jr, and W. L. Beane, ``Influence of Egg Size,
Eggshell Quality, and Posthatch Holding Time on Broiler
Performance.'' Poultry Science 64.11 (1985): 2049-2055; R.A. Guill
and K.W. Washburn, ``Genetic Changes in Efficiency of Feed
Utilization of Chicks Maintaining Body Weight Constant.'' Poultry
Science 53.3 (1974): 1146-1154; R.G. Wells, and C. G. Belyawin,
``Egg Quality-Current Problems and Recent Advances.'' Poultry
Science Symposium Series. No. 636.513 W4. 1987(citing D. Spackman,
``The Effects of Disease on Egg Quality''); W.A. Dozier III, et al.,
``Effects of Early Skip-A-Day Feed Removal on Broiler Live
Performance and Carcass Yield.'' Journal of Applied Poultry Research
11.3 (2002): 297-303. AMS notes additionally that research in this
and related areas has limitations. It is older and results are
mixed. AMS is concerned that publically available research has
stagnated, despite the introduction of new breed strains in the
intervening years. Because integrators now own the genetics
companies, AMS has additional concerns that research has, in effect,
been privatized, creating information asymmeteries.
---------------------------------------------------------------------------
Settlement Document Information on Tournament Group
In the proposed rule, AMS proposed to retain existing regulatory
requirements in Sec. 201.100(f) to provide settlement sheets but to
move the provision to Sec. 201.214(c). It also proposed to require
live poultry dealers employing poultry grower ranking systems to
provide every grower within the system with settlement documents that
show certain information about each grower's ranking within the system,
housing specifications, and the inputs each poultry grower received.
AMS invited comments on how well the requirement to provide input
distribution information, along with settlement payment information,
for all members of the tournament group responds to grower requests to
improve transparency, address information asymmetry, and reduce the
chance of deception in the tournament payment system.
[[Page 83257]]
Comment: Groups representing poultry growers, in general, expressed
support for the proposed settlement disclosure requirements. Commenters
noted these disclosures would help growers determine if they are being
treated fairly compared to other growers in their complex and enable
them to establish cases based on unfair treatment or retaliation
claims. Several commenters advocated for further rulemaking to reform
the tournament system, saying the proposed settlement sheet disclosures
do not sufficiently mitigate several anticompetitive factors and unfair
practices. Commenters said the current rule does not account for
factors such as tournament group composition effects and recommended
that the disclosure requirements for settlements apply to any poultry
contract in which the integrator-controlled factors may impact the
baseline or bonus income of the contract grower. These commenters
suggested AMS require live poultry dealers to disclose input quality
variables and feed discrepancies by house on each grower's farm to
reflect circumstances in which flock drop-off or pick-up for a grower
is split over a weekend, introducing variables in bird performance. AMS
received few comments that specifically opposed making available to
growers information about tournament grouping and composition. AMS has
summarized above and below any comments that oppose proposed required
disclosures, e.g.,: that the disclosures would unnecessarily increase
the dealer's costs.
AMS response: AMS acknowledges the commenters' interest in input
quality variables and feed discrepancies, as well as the timing of
flock drop-off or pick-up. In response to comments, and based on AMS's
experience regulating the poultry industry, AMS has identified
circumstances where live poultry dealers commonly exercise higher
levels of discretion. In these circumstances, broiler growers are
unable to evaluate how live poultry dealers may handle those
circumstances and, as such, are exposed to risks of deception with
respect to the operation of their contract and payment. Commenters
asked for specific disclosures regarding sick, diseased, or high early
mortality flocks; natural disasters; depopulation events; feed outages;
and feed quality, formulation, and suitability.\97\
---------------------------------------------------------------------------
\97\ See, e.g., Animal Welfare Institute, ``Comment on AMS-FTPP-
21-0044: Transparency in Poultry Grower Contracting and
Tournaments'' (received Aug. 1, 2022), available at https://www.regulations.gov/comment/AMS-FTPP-21-0044-0109; Campaign for
Contract Agriculture, Rural Advancement Foundation International--
USA, ``Comment on AMS-FTPP-21-0044: Transparency in Poultry Grower
Contracting and Tournaments'' (received Aug. 23, 2022), available at
https://www.regulations.gov/comment/AMS-FTPP-21-0044-0479; Institute
for Agriculture & Trade Policy, ``Comment on AMS-FTPP-21-0044:
Transparency in Poultry Grower Contracting and Tournaments''
(received Aug. 1, 2022), available at https://www.regulations.gov/comment/AMS-FTPP-21-0044-0110; Stone Barns Center for Food &
Agriculture, ``Comment on AMS-FTPP-21-0044: Transparency in Poultry
Grower Contracting and Tournaments'' (received Aug. 4, 2022),
available at https://www.regulations.gov/comment/AMS-FTPP-21-0044-0139.
---------------------------------------------------------------------------
In this final rule, AMS requires additional disclosure regarding
policies and procedures relating to layout time; sick, diseased, and
high early-mortality flocks; natural disasters, weather events, or
other events adversely affecting the physical infrastructure of the
local complex or grower facility; other events potentially resulting in
massive depopulation of flocks, affecting grower payments; feed
outages, including outage times; and grower complaints relating to feed
quality, formulation, or suitability. AMS believes that focusing on
disclosure of the live poultry dealer's policies and procedures--if
any--in these areas will provide the appropriate flexibility for live
poultry dealers to develop systems that work best for their company and
their growers, while also providing growers with the additional
information they may need to better manage risks relating to those
matters.
AMS determined that specific disclosures would not be suitable to
addressing these risks because the burden on live poultry dealers would
be great, and the benefit of these disclosures would be insufficient.
In part, many of these situations occur from time to time and depend
upon discretion by the live poultry dealer and its field agents.
Because ongoing disclosure would likely be insufficient to provide
growers the advance notice of how live poultry dealers intend to handle
such circumstances, AMS has determined that disclosure of policies and
procedures is the most suitable and effective way to provide growers
with transparency regarding these situations and risks arising from
them. Such an approach is consistent with the approach to disclosure
that AMS is taking, and proposed to take, in other areas that may
depend on a degree of circumstance-specific discretion--for example,
sale-of-farm policies.
AMS will continue to monitor these areas and expects to use the
additional transparency provided by the disclosures to develop more
tailored educational, outreach, or regulatory responses. AMS also notes
the commenters' interest in additional rulemaking with respect to
fairness concerns relating to tournament systems and highlights that it
has put forth an Advance Notice of Proposed Rulemaking focused on those
issues.\98\
---------------------------------------------------------------------------
\98\ Agricultural Marketing Service, ``Poultry Growing
Tournament Systems: Fairness and Related Concerns,'' Request for
Comments (87 FR 34814, June 8, 2022), available at https://www.federalregister.gov/documents/2022/06/08/2022-11998/poultry-growing-tournament-systems-fairness-and-related-concerns.
---------------------------------------------------------------------------
Comment: AMS requested comment on whether the proposed requirement
in Sec. 201.214(c) (Sec. 201.104(c)(1) in the final rule) to include
the housing specification for each poultry grower ranking system
participant on grouping or ranking sheets responds to grower requests
to improve transparency, address information asymmetry, and reduce the
chance of deception in the tournament payment system. Groups
representing poultry growers expressed support for this proposed
requirement, saying it would improve growers' ability to assess the
relative performance and income gains that more modern infrastructure
may provide.
AMS response: In addition to helping growers assess the value of
making housing upgrades, dealers may benefit from making such
disclosures when they can demonstrate for growers a correlation between
more advanced housing tiers and improved flock performance, inducing
more grower advancement. Accordingly, we have retained the requirement
in Sec. 201.104(c) to provide these disclosures.
Comment: Several commenters said the proposed settlement
disclosures would help poultry growers evaluate or improve their
performance, make informed business decisions, or mitigate risks. For
example, these commenters said the information would help growers to
better understand their placement in the tournament and could change
industry bargaining dynamics. However, many commenters said the
disclosures do not go far enough in giving poultry growers meaningful
tools to address fundamental power imbalances, hampering poultry
growers' ability to meaningfully negotiate contracts with live poultry
dealers and minimize dealer opportunities to manipulate rankings within
a group.
AMS response: AMS has designed this final rule to enhance
transparency for broiler chicken growers because of the deception that
arises from well-documented information asymmetries and attendant risks
in the design and operation of poultry grower ranking systems.
Transparency, as provided by this rule, will prevent deception,
encourage live poultry dealers to offer
[[Page 83258]]
better contracts, and enhance growers' ability to understand contracts
and the grower-dealer relationship. Transparency will also prevent live
poultry dealers from engaging in certain forms of deception in the
operation of those contracts. AMS also expects increased transparency
to function as a deterrent by exposing abusive conduct by market
participants. Transparency also creates reputational disincentivizes to
such actions as well. Disclosure regimes in other areas, such as the
FTC's Franchise Rule, as well as the long-established operation of the
Federal securities laws, show that disclosure is a cost-effective tool
to prevent deception, improve trust among market participants, and
mitigate market failure and the potential for market failure.
Disclosure laws are common in financial, housing, and other markets
where the products are complex, the financial risks are significant,
and one party has significantly more information than the other.\99\
Additionally, AMS's experience in the poultry sector and agriculture in
general shows that producers value transparency as a tool for enhancing
their ability to contract and manage risks.
---------------------------------------------------------------------------
\99\ D.W. Carlton and J.M. Perloff, Modern Industrial
Organization (1994): 624. Paula J. Dalley, ``The Use and Misuse of
Disclosure as a Regulatory System,'' 34 Fla. St. U.L. Rev. 1121-22
(2007). https://ir.law.fsu.edu/lr/vol34/iss4/2.
---------------------------------------------------------------------------
AMS recognizes, however, that transparency may not be sufficient to
address all the risks that growers may face, in part because
transparency does not inherently prohibit harmful practices that
growers may be unable to avoid owing to lack of competition (i.e., lack
of other options for poultry dealers with whom to do business),
deception, or other reasons.\100\ Accordingly, AMS has proposed other
rules seeking to prevent retaliation for joining an association or
forming a cooperative, among other protections against discrimination,
retaliation, and deception. AMS has also published an Advance Notice of
Proposed Rulemaking regarding additional rules to address fairness
concerns relating to tournament systems.\101\ AMS is committed to
continuing to improve the integrity, fairness, and competitiveness of
the poultry growing marketplace through additional rules and through
the enforcement of existing laws and regulations, as well as through a
range of other strategies, such as $1 billion in direct investments in
expanded meat and poultry processing capacity that USDA is implementing
to promote competition across agriculture.\102\
---------------------------------------------------------------------------
\100\ Federal Trade Commission Chair Lina M. Khan, ``Poultry
Growing Tournament Systems: Fairness and Related Concerns''
(received Sept. 1, 2022), available at https://www.regulations.gov/comment/AMS-FTPP-22-0046-0143.
\101\ Agricultural Marketing Service, ``Poultry Growing
Tournament Systems: Fairness and Related Concerns,'' Request for
Comments (87 FR 34814, June 8, 2022), available at https://www.federalregister.gov/documents/2022/06/08/2022-11998/poultry-growing-tournament-systems-fairness-and-related-concerns.
\102\ U.S. Department of Agriculture, Agricultural Marketing
Service. (May 2022). Agricultural Competition: A Plan in Support of
Fair and Competitive Markets: USDA'S REPORT TO THE WHITE HOUSE
COMPETITION COUNCIL. Retrieved from Agricultural Competition: A Plan
in Support of Fair and Competitive Markets (usda.gov).
---------------------------------------------------------------------------
Comment: AMS requested comment on whether there is other
information or another way of presenting the proposed settlement
information that would be better. Several groups representing poultry
growers said the proposed disclosure requirements are helpful but
incomplete and recommended requiring live poultry dealers to disclose
other factors that impact grower settlement performance. Commenters
suggested AMS require dealers to document and disclose the quality of
the feed provided to the growers in the settlement group because feed
quality can significantly affect the ranking if a live poultry dealer
provides lower quality feed to one poultry grower within a settlement
group. Commenters urged AMS to require integrators to disclose the
average feed conversion efficiency of flocks hatched from breeder
flocks of that age to enable growers to compare their own performance
to a more accurate flock efficiency performance expectation. Commenters
also suggested that AMS require live poultry dealers to disclose the
flock age at pickup because when integrators pick up flocks before or
after the ideal pick-up time range, growers are penalized due to the
flock's less optimal weight or feed conversion efficiency metrics.
Commenters also recommended disclosure of all appeals, summaries of
their resolution, and any extended delay during poultry delivery or
collection that results in the remaining flock members losing body
weight, being placed back on feed, or being delivered or collected with
a different payment settlement group at a later date.\103\
---------------------------------------------------------------------------
\103\ Campaign for Contract Agriculture, Rural Advancement
Foundation International--USA, ``Comment on AMS-FTPP-21-0044:
Transparency in Poultry Grower Contracting and Tournaments''
(received Aug. 4, 2022), available at https://www.regulations.gov/comment/AMS-FTPP-21-0044-0479, and Virginia Farm Bureau Federation,
``VFBF Comments--AMS Poultry Disclosure Proposed Rule'' (received
Aug. 5, 2022), available at https://www.regulations.gov/comment/AMS-FTPP-21-0044-0160.
---------------------------------------------------------------------------
Industry groups expressed concerns regarding proposed requirements
to report feed disruptions, suggesting AMS clarify what constitutes a
disruption. These commenters noted the proposed rule does not address
situations, such as outages caused by natural disasters or other events
out of either party's control that may affect all participants in the
settlement pool. An industry group also said omitting the requirement
to disclose breeder flock information would reduce costs and
administrative burden on live poultry dealers and reduce confusion
among poultry growers. This commenter also noted live poultry dealers
already provide the information used to calculate a grower's payment
under the contract; therefore, the additional information is
unnecessary and would be confusing to growers. The commenter also asked
AMS to clarify how to address situations in which the live poultry
dealer has determined the sex of the birds for some, but not all,
growers in the settlement pool.
AMS response: Paragraphs 201.102(c)(4)(v) and (vi) of the final
rule require disclosure of integrator policies and procedures relating
to feed outages, including outage times, and grower complaints about
feed quality, formulation, or suitability. AMS intends these provisions
to be broadly construed to include situations caused by natural
disasters as well as other miscellaneous situations. While AMS
acknowledges the requests to omit breeder flock information, it
recognizes that many growers have expressed concern about and need for
this information. Growers will benefit from its inclusion in the
required settlement disclosures because academic research indicates
that different breeder flocks may perform differently.\104\ This is
particularly important information to growers settled under a
tournament payment system, where small differences in outcomes can have
an outsized effect on grower payments because growers are compared on a
relative rather than objective basis. Integrators are in possession of
this information because they acquire and deliver the chicks to
growers, and engage in extensive research and development to improve
performance of the breeds. Absent the provision of this information,
growers are subject to deception because their ability to perform under
the tournament may be adversely affected by differences in these inputs
between growers and by the inability to know and adjust to those
differences at the earliest possible
[[Page 83259]]
moment, to the extent such adjustment is possible. Therefore, AMS is
retaining this requirement in the final rule.
---------------------------------------------------------------------------
\104\ E. David Peebles, et al. ``Effects of Breeder Age and
Dietary Fat on Subsequent Broiler Performance. 1. Growth, Mortality,
and Feed Conversion.'' Poultry Science 78.4 (1999): 505-511.
---------------------------------------------------------------------------
Paragraph 201.104(b)(3) requires that ``[i]f the live poultry
dealer has determined the sex of the birds, all ratios of male and
female poultry delivered'' must be disclosed. AMS does not require that
the live poultry dealer disclose the sex of all birds delivered because
AMS understands that industry practice varies on sexing, and not all
birds are sexed before delivery. However, AMS maintains the requirement
that where a live poultry dealer does engage in some collection of
information regarding the sex of the birds, that the integrator must
disclose that information to growers as it is helpful to growers.
AMS would accept the live poultry dealer using ratios and
percentages to describe bird sex in relation to a flock. AMS did not
provide further clarification beyond this explication because of the
potential variation in practice, and because AMS believes that the
language ``all ratios'' provides an appropriately inclusive coverage of
the information that the live poultry dealer may collect, and which
should be disclosed to growers in those circumstances. AMS will be
making available guidance documents during the implementation phase to
answer live poultry dealer and grower questions, and intends to
implement the rule in a careful, iterative manner.
AMS acknowledges commenters' concerns that flock pick-up timing
(and hence age) may affect grower outcomes. Flock age is often
disclosed under existing Sec. 201.100(f) to the extent that daily
averages are used in formulas to calculate payments. To appropriately
balance the burdens on live poultry dealers, AMS is not adopting
specific disclosures, beyond those that exist in Sec. 201.100(f) on
that topic at this time.
Comment: AMS requested information about obstacles to sharing or
discussing settlement information with others and on whether the right
to discuss the terms of poultry growing arrangement offers should apply
to these disclosures. Groups representing poultry growers said they
appreciate the proposed rule's extension of the existing right to
discuss the terms of growing arrangement offers with other growers from
the same dealer to include the right to discuss the Disclosure
Document. However, they believe growers should also have the right to
discuss the settlement sheet disclosures proposed under Sec. 201.214,
and that AMS should clarify that the current right to discuss the
poultry growing arrangement encompasses this right.
AMS response: The settlement sheet disclosures in Sec. 201.104
will be provided to the entire pool of growers settled during the same
time period. Only the growers' personal identifying information may be
excluded from the settlement sheet documents, as the rule specifically
provides that the disclosures need not show the names of other growers.
AMS is not aware of existing restrictions on settlement information.
New restrictions related to settlement information will be reviewed by
AMS for compliance under the Act, but AMS has not changed the rule
based on this comment.
Comment: AMS invited comments on whether a grower being completely
out of feed for 12 hours is an appropriate length of disruption to
trigger reporting of a feed disruption or whether it should instead
require a shorter time, such as 6 hours. Multiple farm bureau and
poultry group commenters indicated that 6 hours rather than 12 hours
would be an appropriate length of time to trigger reporting. The
commenters stated that being out of feed for 6 hours drops birds' feed
conversion efficiency and would affect the grower on the settlement
sheet. The commenters stated this length would allow growers to
establish a pattern, as growers would have records that let them take
action to correct the problem if they are out of feed multiple times
for multiple hours during consecutive growout periods.
A poultry industry association commented that the turkey industry
has almost no feed disruptions lasting more than 12 hours, except in
cases of natural disaster. The commenter noted in the rare instances
when a disruption might extend to that length of time, addressing it
depends on timely and accurate reporting from the turkey grower and
that turkey integrators have no control over the circumstances when
growers do not report feed disruptions in a timely manner.
AMS response: AMS notes that research \105\ has shown that
commercial broilers deprived of feed for more than 12 hours develop
hemorrhages in their intestines that curtail usual growth patterns and
lessen the efficiency of conversion of feed into meat. AMS also noted
feed withdrawal for 6 hours was not found to be statistically
significant.\106\ Accordingly, in the final rule, AMS retains the 12-
hour threshold for reporting feed disruptions. However, AMS will
monitor implementation and encourages growers to report specific
instances or patterns of concern to AMS.
---------------------------------------------------------------------------
\105\ K.L. Thompson, ``Optimizing Feed Withdrawal Programs,''
Purdue Extension (2008).
\106\ S.F. Bilgili and J.B. Hess. ``Tensile strength of broiler
intestines as influenced by age and feed withdrawal.'' J. Appl.
Poultry Res. 6 (1997): 279-283.
---------------------------------------------------------------------------
Disclosure of Grower and Breeder Identity Information
Section 201.214(b)(4) of the proposed rule would require dealers to
include the breeder facility identifier for the flock in the
information they provide to growers within 24 hours of flock delivery.
Under proposed Sec. 201.214(c)(1), dealers, when providing grouping or
ranking sheets to growers at time of settlement, would not have to show
the names of other growers, but would be required to show their housing
specification and the actual figures upon which the grouping or ranking
is based for each grower grouped or ranked during the specified period.
AMS proposed in Sec. 201.214(c)(2)(iv) to require the grouping or
ranking sheets provided to growers to disclose the breeder facility
identifiers for each poultry grower ranking participant. However, AMS
did not propose to require dealers to disclose the names of breeder
farms. AMS invited comments on whether it should reevaluate this
position. In addition, live poultry dealers currently are not required
to disclose the names of all competing growers on ranking sheets. AMS
did not propose to change this requirement but asked whether it should
require dealers to disclose the names of all competing growers in
settlement documents.
Comment: Several groups representing poultry growers urged AMS to
require integrators to provide the names of breeding facilities, saying
extreme vertical integration means that many breeding facilities are
owned by the integrator delivering chicks to a grower and if growers
knew the actual names of breeders, it would be easier for them to
independently assess relevant variables or issues rather than relying
on the integrator's representations. However, other groups representing
poultry growers did not support a requirement for live poultry dealers
to disclose farm names.
AMS response: The purpose of the rule is to provide the grower with
reliable information needed to make decisions in the management of
their farm. Consistent designation of breeder facility identifiers is
sufficient for the purposes of enabling growers to consistently
understand and track the input. AMS makes no changes based on the
comment.
Comment: Farm bureaus and poultry grower groups said it is not
necessary for AMS to require live poultry dealers to disclose the names
of all competing growers in settlement documents. These
[[Page 83260]]
commenters opposed disclosure of individual grower names and said such
disclosure would be a breach of privacy.
AMS response: AMS agrees grower privacy is important and should be
appropriately protected. The names of competing growers does not
provide useful information to growers to assess the role that
differences in inputs played in their settlement or, from that, in the
expected future profitability of their operations because the purpose
of the disclosure is to prevent deception against the grower and to
enable the grower to perform better. The appropriate focus then is on
the substantive differences in the inputs, or the housing
specifications, which requires disclosure of those items among
different settlement participants but can be done using consistent
identifiers other than actual grower names. To affirm that position,
AMS retained the language of the proposed rule, which provided that the
names of the growers need not be provided in the settlement document,
consistent with current practice under existing disclosure requirements
for settlement. AMS is not adopting a prohibition on live poultry
dealers using the names of growers as that was not proposed. Further,
because the goal of the rule is disclosure, rather than prohibitions
against disclosure, such a prohibition is outside of the scope of this
rule.
J. Effective Date
Comment: Live poultry dealers and industry groups noted AMS has
publicly indicated that it is considering changes to multiple
regulations under the Act and said that AMS should share all proposed
rules specific to the tournament system at one time to allow
stakeholders to comment on the proposed changes in their entirety.
Commenters further urged AMS not to take an incremental approach to
updating the regulations and asserted that such an approach would
create challenges for poultry growers and dealers, such as increasing
compliance costs, confusion, uncertainty, and frustration. In addition,
these commenters recommended that AMS provide one effective date for
all regulatory changes under the Act. One commenter recommended that
the effective date for this rule be delayed for five years to give live
poultry dealers time to build five-year records for disclosure and to
develop the necessary systems for producing required disclosures.
Another commenter suggested that AMS conduct outreach to explain to
producers and food companies the regulatory changes and how they will
be implemented and enforced.
AMS response: Our approach has been to address the regulatory needs
of the poultry industry systematically and as swiftly as possible. All
broiler growers can benefit immediately from the greater transparency
offered by this final rule. AMS does not want to postpone implementing
this regulation, which makes available vital information growers need
when deciding whether to incur capital expenses and engage in broiler
production. Nor do we want to delay provision of useful input
information to broiler growers in tournaments, who can use that
information immediately to make production management decisions.
Based on AMS's experience with the industry, we believe live
poultry dealers have ready access to the historical information they
are required to provide in the Disclosure Documents. AMS agrees with
commenters that the final rule should provide sufficient time to
implement any changes it requires. Therefore, the effective date for
this rule is 75--rather than 60--days following publication in the
Federal Register. Live poultry dealers will need to amend contracts in
some instances, create records processes, format the incorporation of
new information in existing documents, and create Disclosure Documents
using USDA instructions. Seventy-five days provides the length of at
least one flock to prepare for implementation of the rule. USDA will
have resources available to answer questions as appropriate.
Additionally, based in part on the experience of recent settlements
between DOJ and a large poultry company, AMS believes this period will
provide sufficient time for live poultry dealers to update their
compliance systems and policies and procedures and commence complying
with the rule.
AMS agrees that it should conduct outreach to producers and food
companies regarding regulatory changes, implementation, and
enforcement. Over the course of this rulemaking, AMS has published
informational materials, including a fact sheet and a video webinar to
help the public understand the proposed rule. AMS intends to conduct
further education and outreach following the finalization of the rule.
AMS rejects comments calling for a delay of rules until other rules
are proposed and critiquing its incremental approach. To the contrary,
AMS is deploying a nuanced approach to these rulemaking proposals such
that stakeholders and the public can review each individual proposal on
its own merits. This approach offers producers and other market
participants greater ability to effectively evaluate the impacts of
each proposal on the market and their particular interests, and enables
commenters to more effectively tailor and target comments.
K. Regulatory Notices & Analysis and Executive Order Determinations
Comment: Live poultry dealers said the full cost of the proposed
rule will likely be many times more than predicted by AMS. For example,
these commenters asserted AMS greatly underestimated the costs of
creating the recordkeeping systems needed to comply with the proposed
rule, the proposal would add costs generated by frivolous litigation,
and the proposal would undermine the tournament system and replace it
with a new model that would likely drive up the costs of chicken
production. Live poultry dealers and industry groups said AMS's own
estimate indicates the 10-year aggregate costs will be higher for
poultry growers than for live poultry dealers.
AMS response: In drafting and estimating the cost of the proposed
rule, AMS consulted auditors and supervisors who are familiar with live
poultry dealers' records from many years of experience in auditing live
poultry dealers for compliance with the Act. In contrast, commentors
provided no estimated costs for AMS to review. AMS expects the
recordkeeping systems most live poultry dealers already have in place
will enable them to gather much of the information in the disclosures
from records available to them, which limits the necessity of
developing new recordkeeping systems.
The higher costs estimated for broiler growers compared to live
poultry dealers is due to the large number of broiler growers that
receive the disclosures compared to a small number of live poultry
dealers. The primary costs to the live poultry dealers are the one-time
costs to develop the disclosures, while the ongoing costs to update,
distribute, and maintain the disclosures are relatively small. A small
number of live poultry dealers will incur relatively small costs to
distribute the disclosures to relatively large groups of growers, but
AMS anticipates every grower will read the disclosures. The actual cost
to any individual grower is estimated as the value of the time required
to read the Disclosure Documents, but with more than 16,000 broiler
growers with more than 19,000 broiler growing contracts and just over
40 live poultry dealers engaged in broiler production, aggregate cost
estimates are higher for broiler growers
[[Page 83261]]
than for live poultry dealers, though the rule has a significantly
lower cost estimate for a single grower than for a single dealer.
The new requirements in the rule are primarily disclosures of
information by dealers to broiler growers. AMS does not expect that
informing growers about their contracts and how they are ranked in the
tournament system will cause frivolous lawsuits. Increased transparency
through this final rule should improve confidence in the tournament
system rather than undermine it.
Comment: Groups representing poultry growers said they agree with
AMS that the benefits of the proposed rule outweigh the costs. They
suggested that benefits for poultry growers include being able to
predict their range of income for the coming year and having
transparency about the quality of inputs provided by the live poultry
dealer. These commenters also said that additional benefits to poultry-
dependent communities could include fewer growers going into debt to
build facilities and consequently fewer abandoned poultry houses
degrading the value of farms and the community. Industry groups said
they do not believe estimates of benefits are well-founded, and that
the calculation of benefits merely attempts to quantify the revenue
reduction poultry growers would be willing to accept in exchange for
increased transparency under the proposal.
AMS response: USDA estimated that some of the benefits of the rule
would come from reduced revenue uncertainty associated with greater
transparency. The greater transparency would include a tighter range
around predicted income due to such factors as a higher probability of
receiving a new contract and lower variability in compensation under
the contracts due to greater transparency about input quality as it
relates to revenue. USDA also listed a number of benefits in
qualitative terms, as it does not have the information to estimate
empirical values associated with them.
AMS expects that if property values change due to final Sec. Sec.
201.102 or 201.104, the change would be very small. Broiler growers who
abandoned housing and exited the industry will not benefit from the
rule and will have no incentive to remove the abandoned housing. For
broiler growers that remain in the industry, expected gains would be
modest relative to the costs removing buildings.
The concept of risk aversion is well founded. It is the reason that
insurance and futures and options exchanges exist, for example. The
risk aversion benefits estimated for the rule represent the value to
growers of a decrease in the uncertainty of revenue due to increased
transparency. Since growers do not have to pay for the increased
transparency, the estimated benefit to growers is the same as their net
benefit (i.e., the gross benefit minus the cost to growers of increased
transparency). And at the industry level, even with the small decrease
in grower revenue uncertainty assumed for the analysis, the benefits to
growers are higher than the cost to dealers of complying with the rule.
L. Legal Issues Relating to the Proposed Rule
Comment: Industry groups argued AMS lacks authority to issue this
rule. A commenter said that AMS asserts a broad mandate to rewrite
private contracts and affect relationships between live poultry dealers
and poultry growers, yet the Act's legislative history shows Congress
intended for AMS's statutory authority to be much narrower in scope. A
commenter cited a Supreme Court decision shortly after the Act's
passage noting that Congress enacted the Act to ensure the free flow of
livestock and prevent packers from using monopoly power to set unfair
prices,\107\ as well as the 1935 expansion of the Act to include live
poultry dealers, in which Congress said it targeted unfair, deceptive,
and fraudulent practices and devices because ``they are an undue
restraint and unjust burden upon interstate commerce.'' \108\
---------------------------------------------------------------------------
\107\ Stafford v. Wallace, 258 U.S. 495, 514-15 (1922).
\108\ Packers and Stockyards Act of 1921, Public Law 74-272,
Sec. 501, 49 Stat. 648, 648 (1935).
---------------------------------------------------------------------------
Commenters continued by arguing, for instance, AMS does not have
authority to promulgate parts of the proposed rule it justifies based
on the goal of achieving ``fair income'' for poultry growers or that
characterize growing arrangements as incomplete contracts so it can
target information asymmetry between dealers and growers. A commenter
rejected the concept that the Act gives AMS authority to prevent
information asymmetry in contracts between dealers and growers, stating
that it has not established that the Act's prohibition on unfair,
unjustly discriminatory, or deceptive practices applies to ``plainly
written poultry growing arrangements.'' Commenters contended that many
other lawful business arrangements do not encompass all conditions
affecting compensation in the contract and that all real-world markets
have some information asymmetry. A commenter also contended AMS's
citation of FTC regulation under sec. 5 of the FTC Act, which Congress
drew on in enacting the Act to support its targeting of information
asymmetry, undermines its authority in relation to the proposed rule.
According to this commenter, this section was interpreted at the time
of the Act's enactment to ``prohibit anti-competitive and monopolistic
conduct, but not to restrict legitimate corporate activity'' such as
the tournament system.
A meat and poultry industry association said AMS lacks statutory
authority to justify disclosure of potentially confidential,
proprietary, and competitively sensitive payment history information
required in Sec. 201.102(d) of the final rule, as well as the
requirement in Sec. 201.102(d)(4) of the final rule that live poultry
dealers must disclose contact information for State university
extension service offices or county farm advisor's offices. The
commenter also said if, as implied under Sec. 201.102(g)(1)--Grower
Receipt of the final rule, AMS is taking the position that live poultry
dealers can violate sections 202(a) and 202(b) of the Act even if they
do not harm competition, it is acting without statutory authority, as
Congress enacted the Act to curb monopolies and courts have
consistently held that the statute only prohibits anticompetitive
practices.
AMS response: AMS disagrees that competition was at the time of
enactment, or is now, the controlling factor for all regulations issued
under the Act. Moreover, even where relevant, competition for the
purposes of Section 202 must be defined by the plain meaning of Section
202, which defines the scope of USDA's authority. Therefore, the
meaning of competition or harm to competition must be broader than its
meaning under the antitrust laws.\109\
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\109\ See Spencer Livestock Com. Co. v. Department of
Agriculture, 841 F.2d 1451 at 1455 (9th Cir. 1988) (The Packers and
Stockyards Act is more than ``a mere mirror of the antitrust
laws'').
---------------------------------------------------------------------------
As USDA noted in a 2010 proposed rule, a 2016 interim final rule,
and a 2017 final rule,\110\ it has consistently taken the position that
``in some cases, a violation of section 202(a) or (b) can be proven
without proof of predatory intent, competitive injury, or likelihood of
competitive injury.'' Scope of Sections 202(a) and (b) of the Packers
[[Page 83262]]
and Stockyards Act, 81 FR 92566, 92567 (Dec. 20, 2016); see also Scope
of Sections 202(a) and (b) of the Packers and Stockyards Act, 82 FR
48594, 48595 (Oct. 18, 2017); Implementation of Regulations Required
Under Title XI of the Food, Conservation and Energy Act of 2008;
Conduct in Violation of the Act, 75 FR 35338, 35340 (June 22, 2010).
---------------------------------------------------------------------------
\110\ In the 2017 final rule, USDA withdrew the 2016 interim
final rule out of concerns about confusion over the conflicting
court decisions on this subject and the absence of a good cause
justification for foregoing notice and comment. However, USDA
reaffirmed its longstanding position that harm to competition is not
required, which we again reaffirm here.
---------------------------------------------------------------------------
USDA has previously explained that this consistently-held position
is based on the language, structure, purpose, and legislative history
of the Act. See, e.g., Scope of Sections 202(a) and (b) of the Packers
and Stockyards Act, 81 FR at 92567-92568. USDA continues to adhere to
this longstanding position, despite the disagreement of some courts as
to the proper scope of the Act. See Scope of Sections 202(a) and (b) of
the Packers and Stockyards Act, 82 FR 48596 (Oct. 18, 2017)
(reaffirming that ``USDA has adhered to this interpretation of the P&S
Act for decades'' and rejecting comments that this interpretation is
not the USDA's longstanding position).
Even where courts have disagreed with USDA's longstanding position
that competitive harm is not required under these sections, some have
not held that such a requirement would apply to a claim of deception
under Sec. 202(a), as opposed to other claims such as unfairness
claims. See, e.g., Been v. O.K. Industries, 495 F.3d 1217, 1227 (10th
Cir. 2007) (``We are concerned here only with whether unfairness
requires a showing of a likely injury to competition, not whether
deceptive practices require such a showing.'') Such AMS authority to
regulate deception is well-established. This includes forming the basis
of a proposed consent decree between DOJ and two of the nation's
largest poultry companies relating to the failure to provide the
transparency that would be mandated under this rule. As DOJ set forth
in its complaint: ``Poultry processors have also engaged in deceptive
practices associated with the `tournament system.' Under this system,
growers are penalized if they underperform other growers, but poultry
processors control the key inputs . . . that often determine a grower's
success. Poultry processors often fail to disclose the information that
growers would need to evaluate and manage their financial risk or
compare offers from competing processors.'' \111\
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\111\ U.S. v. Cargill Meat Solutions, Complaint, D. MD, July 25,
2022, available at https://www.justice.gov/atr/case-document/file/1528331/download.
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The regulatory mechanism of disclosure, as set forth in this rule,
is also well-established as a cure for deceptive practices that arise
from information gaps in the marketplace, including AMS's disclosures
already in place under the Act for settlement in the poultry sector,
FTC's mandated disclosures by franchise companies to franchisees, and a
range of other mandated disclosures by Federal and State regulators.
Rather than undermining AMS's authority, a reference to FTC's sec. 5
authority on deceptive practices is entirely appropriate, as courts
have long recognized the similar design and application of the two
provisions. Violations under FTC's sec. 5 deceptive practices authority
do not require a showing of harm to competition.\112\
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\112\ Federal Trade Commission, Policy Statement on Deception,
1983. See also, e.g., FTC v. Minuteman Press et al., E.D. N.Y.
(1998), available at https://www.ftc.gov/legal-library/browse/cases-proceedings/minuteman-press-et-al. Morrone's Water Ice, Inc.;
Franchise Consultants Corporation d/b/a Franchise Consultants Group;
et al., E.D. Penn. (2003), available at https://www.ftc.gov/legal-library/browse/cases-proceedings/x020068-morrones-water-ice-inc-franchise-consultants-corporation-dba-franchise-consultants-group-et-al.
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Regardless, even if a showing of harm to competition were required
for a deception claim, the deceptive practices prohibited in this rule
would meet such a requirement. AMS rejects the idea that a prohibition
on certain widespread deceptive practices is inconsistent with
addressing anticompetitive conduct, including information asymmetries
and the holdup and other anticompetitive risks that may arise from them
and distort competition in the market for grower services.
AMS affirms the longstanding view that fraud and deception have no
value or place in a competitive market.\113\ Indeed, the academic
literature has long understood that Section 202 covers two broad
categories of conduct, (1) anticompetitive conduct and (2) conduct
described as ``market abuses.'' 114 AMS seeks to enable
growers to better protect themselves from hidden risks in contracting
and the operation of those contracts. Preventing deception enhances
competition among dealers by enabling growers to compare offers and
reasonably assess entry into the business. Preventing deception
improves how markets function by forcing dealers to compete for growers
service based on the merits of commercial offer the producer is making.
Preventing deception enables growers to better assess their performance
vis-[agrave]-vis other growers.
---------------------------------------------------------------------------
\113\ Bruhn's Freezer Meats, Inc. v. Department of Agriculture,
438 F.2d 1332, at 1341 (mislabeling grading of meat violates section
202); USDA v. Excel Corp, 397 F.3d 1285 (failure to disclose change
in grading system violates section 202).
---------------------------------------------------------------------------
Ultimately, the conduct at issue is squarely within the purposes of
the Act. Where conduct ``prevents an honest give and take in the
market,'' it ``deprives market participants of the benefits of
competition'' and ``impedes . . . a well-functioning market.'' \115\ In
its report on the 1958 amendments to the Packers and Stockyards Act,
the U.S. House of Representatives explained that the statute promotes
both ``fair competition and fair trade'' and is designed to guard
``against [producers] receiving less than the true market value of
their livestock.'' \116\ Deception subverts normal market forces,
undermines market integrity, and deprives producers and growers of the
true value of their products and services.
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\115\ Kades, 55, also quoting the FTC.
\116\ Kades at 55.
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Comment: Poultry grower groups argued that AMS has both authority
and obligation to implement the rule. These commenters said the Act
authorizes the Secretary of Agriculture to make rules necessary to
carry out its provisions, and one of its cornerstones is ensuring that
business arrangements between live poultry dealers and growers are not
unfair, unjustly discriminatory, deceptive, or facilitating undue
preferences. They contended that, because the proposed rule aims to
improve the information asymmetry between dealers and growers so that
violations of the Act no longer persist unchecked, its requirements
clearly fall within AMS's rulemaking authority. The commenters also
cited evidence that Congress intended the Act to go beyond previous
antitrust laws to target an expansive range of anticompetitive conduct
by meat companies.
AMS response: AMS affirms the view that the conduct that may be
prohibited under the Act is more expansive than that which is covered
under the Sherman Act, 15 U.S.C. 1 et seq., the Clayton Act, 15 U.S.C.
12 et seq. or the FTC Act, 15 U.S.C. 41 et seq., and in particular,
that deceptive practices sought to be prohibited by the rule fall
within the authority of the Act.
Comment: Live poultry dealers and industry groups argued that the
proposed rule is beyond the scope of congressional direction. They said
that there was a lack of further congressional action since the Food,
Conservation, and Energy Act of 2008 (2008 Farm Bill; Pub. L. 110-234;
June 18, 2008) and that AMS has completed its rulemaking under the 2008
Farm Bill. This, the commenters assert, indicates that Congress views
the current framework as adequate.
[[Page 83263]]
These commenters also cited the major questions doctrine put forth
by the recent Supreme Court decision in West Virginia v. Environmental
Protection Agency \117\ as a limiting factor for AMS's authority to
promulgate this rule. According to these commenters, the issue of
whether the Federal Government should further regulate poultry growing
contracting has political and economic significance, and AMS has not
demonstrated clear congressional authorization to exercise its powers
on this issue, meaning the agency lacks the authority for this rule.
Poultry grower groups argue that the proposed rule does not trigger the
major questions doctrine because, rather than making a radical change
based on vague authority, it is based on clear congressional mandates
and represents only incremental improvements to the preexisting
regulatory regime. These commenters further contended that sec. 202 of
the Act, which enumerates the practices Congress has deemed unlawful,
provides a clear and forceful statement of AMS responsibility to
regulate such practices.
---------------------------------------------------------------------------
\117\ 142 S. Ct. 2587 (2022).
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AMS response: AMS exercises its statutory authority under the Act,
which includes authority to address deceptive practices. The lack of
congressional action since the 2008 Farm Bill does not impact the scope
of AMS's authority under the Act.
With respect to the major questions doctrine, there is no
indication that this regulation is of such economic and political
significance that the Congress did not give the Secretary authority to
write a regulation of this kind. In West Virginia, 142 S. Ct. at 2604,
the Court noted that EPA's modeling ``would entail billions of dollars
of compliance costs[.]'' In comparison, this rule will cost less than
10 million dollars over the course of the next decade. Sec. 407 of the
Act gives AMS the authority to ``make such rules, regulations, and
orders as may be necessary to carry out the provisions of'' the Act. 7
U.S.C. 228. Moreover, at least one court has concluded that Congress
intended for the USDA to have broad regulatory power under the Packers
and Stockyards Act. As the Court of Appeals for the Eighth Circuit
observed in Bruhn's Freezer Meats of Chicago, Inc. v. U.S. Dep't of
Agric., 438 F.2d 1332, 1339 (8th Cir. 1971), ``[t]he Act was framed in
language designed to permit the fullest control of packers and
stockyards which the Constitution permits, and its coverage was to
encompass the complete chain of commerce and give the Secretary of
Agriculture complete regulatory power over packers and all activities
connected therewith. H.R. Rep. No. 324, 67th Cong., 1st Sess. (1921);
H.R. Rep. No. 77, 67th Cong., 1st Sess. (1921).''
As noted above, AMS has long maintained disclosure requirements
under the Act with respect to poultry contracting and the operation
thereof, including settlement payment disclosures. Further, regulation
of the communication to producers under related regulations is not at
all unusual: buyers in grade and yield transactions must provide
accurate accounting and provide the basis of the grade. Similarly, FTC
has long required disclosures under its Franchise Rule \118\ to address
similar deception risks for business owners seeking to enter into a
franchise relationship with a franchisor. In this rule, AMS updates its
disclosure rules to reflect the realities of modern poultry growing,
which are comparable to a franchisor-franchisee contractual
relationship, including with respect to taking out debt, taking into
account the range of other risks relating to doing business in this
sector such as trust and compliance issues as exemplified by a recent
DOJ poultry industry price fixing prosecution and Packers and
Stockyards Act deceptive practices investigation resulting in a number
of guilty pleas and consent decrees.\119\
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\118\ 16 CFR parts 436 and 437.
\119\ Plea Agreement: U.S. v. Pilgrim's Pride Corp., Feb. 23,
2021, 20-cr-00330-RM, available at https://www.justice.gov/atr/case-document/file/1373956/download. Consent Decree: U.S. v. Cargill Meat
Solutions. Corp., et al. (Sanderson Farms, Inc., Wayne Farms, LLC),
July 25, 2022, 1:22-cv-01821-ELH, available at https://www.justice.gov/opa/pr/justice-department-files-lawsuit-and-proposed-consent-decrees-end-long-running-conspiracy.
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Comment: Live poultry dealers and industry groups argued that AMS
relied on anecdotes and did not cite actual violations of the Act that
would justify the proposed rule. These commenters indicated that the
administrative record thus does not support a rulemaking on poultry
grower contracting at this time, especially one likely to have
significant costs affecting supply chains. State attorneys general and
groups representing poultry growers noted a proposed settlement
agreement between DOJ and poultry processors \120\ stemming from the
recent wage suppressing conspiracy and Packers and Stockyards Act
deceptive practices investigation that includes disclosure requirements
similar to those in the proposed rule. Groups representing poultry
growers suggested this consent decree indicates that these companies
are capable of running their businesses under fairer and more
transparent conditions.
---------------------------------------------------------------------------
\120\ U.S. v. Cargill Meat Solutions. Corp., et al. (Sanderson
Farms, Inc., Wayne Farms, LLC), July 25, 2022, 1:22-cv-01821-ELH,
available at https://www.justice.gov/opa/pr/justice-department-files-lawsuit-and-proposed-consent-decrees-end-long-running-conspiracy.
---------------------------------------------------------------------------
AMS response: AMS chose to take a regulatory approach, as opposed
to case-by-case enforcement, to enable it to better tailor its approach
to addressing the concerns under the Act that AMS has identified in the
poultry sector, especially relating to broiler chickens. Such an
approach permits AMS to transparently engage the public, industry,
Congress, and others, and obtain the benefit of accepting public
comments during the regulatory process. Yet, as indicated by the State
attorney general commenters, AMS has also determined it appropriate to
refer cases regarding deception in the failure to disclose important
information regarding financial risks in poultry growing arrangements
and the operation of those arrangements to DOJ for handling as
circumstances warrant, as exemplified by the recent consent decree
whereby the nation's third largest poultry processor agreed to provide
the disclosures as set forth in the proposed rule and updated by this
final rule. This case and settlement indicate both the seriousness of
the ongoing deceptive practices violation, as well as the
appropriateness and workability of the remedy defined by this rule.
Comment: Several farm bureaus suggested the rule should have been
an interim final rule, rather than a final rule, to give AMS the
regulatory flexibility to immediately address any effectiveness issues
with the disclosures. Groups representing poultry growers said the
proposal's required disclosure of material information to protect
parties to asymmetrical business relationships is a longstanding policy
tool for promoting healthier markets and does not violate any
``cognizable right,'' including dealers' First Amendment rights. Groups
representing poultry growers also urged AMS to affirm its
interpretation of secs. 202(a) and (b) of the Act to not require a
harm-to-competition standard, as it is highly difficult for farmers to
meet this standard, and argued that USDA's December 2020 ``undue
preferences'' rule \121\ creates a substantial loophole for
[[Page 83264]]
dealers by allowing them to justify actions they claim are a
``reasonable business decision.'' An industry group said the heightened
disclosure requirements between dealers and growers in the proposed
rule may raise competitive concerns by creating an information exchange
of specific and competitively sensitive information between a wide
range of actual and potential competitors. The commenter also said
marketing agreements may experience a chilling effect, as increased
transparency may lead dealers to offer growers uniform contract terms
that diminish competition as well as individual growers' marketing
power.
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\121\ Agricultural Marketing Service, ``Undue and Unreasonable
Preferences and Advantages Under the Packers and Stockyards Act,
Final Rule, Dec. 11, 2020, 85 FR 79779, available at https://www.federalregister.gov/documents/2020/12/11/2020-27117/undue-and-unreasonable-preferences-and-advantages-under-the-packers-and-stockyards-act.
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AMS response: AMS notes the commenters' interest in an interim
final rule. An interim final rule is generally reserved for situations
where the agency, for good cause, finds that prior notice is
``impracticable,'' ``unnecessary,'' or ``contrary to the public
interest,'' in which case the agency may issue a final rule without
providing the usual notice and comment required by the Administrative
Procedure Act (APA).\122\ However, because AMS has already solicited
comments on the proposed rule, it is unnecessary to issue an interim
rule and make a good cause finding to justify non-compliance with the
APA's notice and comment requirements.
---------------------------------------------------------------------------
\122\ 5 U.S.C. 553(b)(B).
---------------------------------------------------------------------------
AMS further affirms that no further showing is required to prove a
violation of the Act beyond a violation of the provisions set forth in
this rule.
AMS believes that the provision of additional information to
growers will improve the competitive market conditions by allowing
growers to better understand, evaluate, and compare contracts among
dealers, enhancing their ability to bargain efficiently by reducing
deceptive practices. Deception has no competitive value or place in the
market and can create inefficiencies. AMS is skeptical that contract
terms will necessarily become more uniform and further finds that the
new transparency will allow live poultry dealers to compete for growers
on the merits of their contracts and aid in marketplace innovation as
live poultry dealers and growers remain free to develop new and
innovative methods for conducting their business. Previous AMS
rulemakings related to disclosures in poultry growing have not been
shown to negatively affect innovation.
With respect to information exchanges, AMS notes that statistical
sharing services today routinely collect and make available a wide
range of information only to live poultry dealer subscribers. AMS has
tailored the disclosures to provide information useful to growers in
their particular circumstances and has reduced requirements such as the
disclosure of information across all complexes in part to reduce risks
of inappropriate information sharing.
M. Other Comments About the Proposed Rule
Comment: A farm bureau recommended adding several requirements for
grower contracts, such as: performance verification provisions to
protect growers from arbitrary company sanctions on bird placements;
clear statements of layout times (i.e., time between flock placements)
and company compensation for extended periods of reduced or no bird
placements; a requirement that contracts should not be subject to
change by the company without prior agreement from the grower; starting
pay rates that allow amortization of debt load in 10 years, cover
normal expenses, and provide the grower a livable income; additional
compensation for above-average feed conversion; and company
responsibility for low performance based on company-provided inputs. In
addition, the commenter recommended that contracts clearly disclose
risks and provide grower protections against early termination, and
that live poultry dealers provide growers with ample time to review
contracts. This commenter said contracts that require arbitration for
grower disputes should also require arbitration for dealer disputes,
while another farm bureau said AMS should ban mandatory arbitration
clauses in contracts.
AMS response: AMS shares many of the concerns expressed in the
above comment summary. Improved transparency including contract
requirements requiring minimum flock placements and minimum density
will reduce asymmetric information problems and address many of the
issues related to flock placements and out time. Additionally, this
regime will deter dealers from constant contract modifications that
would trigger a new Disclosure Document. Further, AMS views the
financial disclosures required in this rule as appropriate to inform
growers of revenues, potential profitability, and debt management.
Growers maintain the statutorily protected right to opt out of
arbitration. Therefore, no changes were made to the proposed rule.
Comment: A poultry grower group indicated the rule does not address
the lack of transparency associated with farm research and development.
The commenter explained that poultry companies do not own their own
farms; therefore, research and development for farm-level changes
cannot take place within the company's business infrastructure.
According to the commenter, the result is that major dealers benefit
from expensive research and development efforts, and the unknowing
poultry growers routinely shoulder the burden of live poultry dealer
``experiments'' with neither consent from nor compensation for the
grower.
To stay ahead of the field and make advancements, according to the
commenter, companies use a few common strategies, such as merging with
and acquiring smaller companies that are pioneers in new fields,
leveraging financial and political influence over research at
universities, and experimenting through mandatory trial-and-error
efforts on contract farms, such as studying the effect of windows in
chicken houses and introduction of slow-growth chickens as a research
program with associated adjustments in flock schedules for growers.
The commenter provided an example of growers being required to
change growing practices due to the increased value of chicken paws
(feet) without seeing a benefit. Multiple farmers contracting with
three different integrators have come to the commenter expressing
concerns about having to change growing practices to promote the health
of chicken paws. No farmer was compensated for these changes according
to the commenter; however, the companies have experienced a financial
windfall because of growing demand in China for chicken paws. According
to the commenter, farmers spent their own time and energy to increase
company profits and that effort was not reflected in their tournament
ranking.
AMS response: AMS shares some of the concerns cited above,
particularly with regard to practices resembling ``trial and error''
experimentation at the expense of contract growers. To the extent that
programs of this type are a change in housing specification, new
disclosures would be required for growers to evaluate the benefit.
Where adjustments to management practices cause growers to incur
additional costs and are not covered in the contract, a new contract
may be required, again triggering a new Disclosure Document.
Separately, AMS has proposed rules to better protect growers' rights to
organize associations and cooperatives, which may enable them to more
effectively
[[Page 83265]]
work together and bargain under existing laws.\123\ Therefore, no
changes to the proposal are warranted.
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\123\ Agricultural Marketing Service, ``Inclusive Competition
and Market Integrity,'' Proposed Rule, Oct. 3, 2022, 87 FR 60010,
available at https://www.federalregister.gov/documents/2022/10/03/2022-21114/inclusive-competition-and-market-integrity-under-the-packers-and-stockyards-act.
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Comment: A group representing poultry growers noted that, under the
proposed rule, live poultry dealers will still control most of the
production inputs, which fails to close the extreme disparity in
bargaining power between growers and dealers. Based on the experience
of growers in its network, the commenter described several problems it
anticipated will remain even if the proposed rule is implemented.
The commenter stated debt accumulation is a problem that will
remain even if the rule is implemented. The commenter stated that
growers lack leverage to negotiate favorable contract terms, often
incurring substantial debt loads as they invest significant amounts of
money in poultry houses and in modifications and upgrades that dealers
require as a condition of contract renewal. According to the commenter,
growers are then stuck paying back the loans to the same companies that
required them to make the investments in the first place, leading to
``crippling accumulations of debt'' resulting in numerous bankruptcies,
and the amount of this debt is expected to increase.
Finally, the commenter said there are limited legal resources
available to farmers to fight against poultry companies, with time and
legal costs deterring farmers from seeking justice in court. According
to the commenter, while the proposed rule provides some legal recourse
for controversies related to the Disclosure Document and poultry
growing arrangements, the exchange of information between growers and
dealers is not sufficient and the costs of litigation are still often
prohibitive.
AMS response: AMS is concerned about poultry grower debt
accumulation. AMS is confident the disclosure regime outlined in this
proposal will provide baseline information relating to revenue and
profitability of their operations, improving grower debt management. As
housing specifications evolve and new investments are mandated, under
this rule, growers will receive additional required disclosures that
will better enable growers to assess additional capital investments.
AMS will continue to review capital improvement programs and evaluate
those programs under existing Sec. 201.216. AMS encourages growers
with specific concerns to submit complaints and tips through
farmerfairness.gov or to contact AMS directly at 1-833-DIAL-PSD (1-833-
342-3773).
Comment: Commenters recommended AMS require dealers proposing or
requiring modifications to existing grower infrastructure housing
specifications to disclose their own cost-benefit analysis to growers.
Further those commenters said that any finding that any such cost/
benefit disclosures are broadly fallacious, i.e., that where the
dealer's cost-benefit claims did not match the actual costs and
benefits, should constitute a violation of the Act as a deceptive
practice.
AMS response: While this rule does require some financial
disclosures related to additional capital improvements and other
deviations from the prior five-year grower payments, AMS is not
requiring the production and disclosure of a dealer's cost-benefit
analyses because AMS is not prepared, at this time, to assess all
potential cost-benefit factors, as well as the necessary formatting and
recordkeeping requirements that would be implicated. In the interim,
AMS will also continue to review grower solicitation practices and
inducement materials. Practices and materials that are deceptive have
and will continue to be violations of the Act. AMS is not adopting such
a requirement at this time but may consider the value of such a
disclosure as part of future steps. In particular, AMS is reviewing
this issue in light of comments received on the June 2022 ``Advance
Notice of Proposed Rulemaking on Poultry Tournaments: Fairness and
Related Concerns'' and may elect to address issues related to
additional capital investments in future rulemakings.
Comment: Commenters also wanted AMS to require live poultry dealers
to give poultry growers a minimum of 6 months to begin any upgrades
they might demand.
AMS response: AMS is also not at this time adopting any
requirements relating to the timing for when housing upgrades could be
required. The request by commenters is not within the scope of this
rule, and AMS needs additional time to consider the matter. AMS will
consider the matter as part of comments received to the June 2022
``Advance Notice of Proposed Rulemaking on Poultry Tournaments:
Fairness and Related Concerns.''
VIII. Regulatory Analyses
A. Executive Orders 12866, 13563, and 14094
AMS is providing a regulatory analysis in conformance with the
requirements of Executive Orders 12866--Regulatory Planning and Review,
13563--Improving Regulation and Regulatory Review, and 14094--
Modernizing Regulatory Review, which direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits, including potential economic, environmental, public
health and safety effects, distributive impacts, and equity. Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, reducing costs, harmonizing rules, and promoting flexibility.
Executive Order 14094 reaffirms, supplements, and updates Executive
Order 12866 and further directs agencies to solicit and consider input
from a wide range of affected and interested parties through a variety
of means.
In the development of this rule, AMS considered several
alternatives, which are described in the Regulatory Impact Analysis,
below.
The final rule is not expected to provide, and AMS did not
estimate, any environmental, public health, or safety benefits or
impacts associated with the proposed rule.
This final rule has been determined to be significant for the
purposes of Executive Order 12866 and therefore has been reviewed by
the Office of Management and Budget (OMB). Details on the estimated
costs of this final rule can be found in the rule's economic analysis.
AMS is amending 9 CFR part 201 by adding new definitions to Sec.
201.2, adding new Sec. 201.102 regarding contract and disclosure
requirements for live poultry dealers engaged in broiler production,
and adding new Sec. 201.104 regarding live poultry dealer
responsibilities when they use poultry grower ranking systems to settle
payments for broiler growers. Based on its familiarity with the
industry, AMS's Packers and Stockyards Division (PSD) prepared an
economic analysis of the final rule as part of the regulatory process.
The economic analysis includes a cost-benefit analysis of the rule. PSD
then discusses the impact on small businesses.
B. Regulatory Impact Analysis
As a required part of the regulatory process, AMS prepared an
economic
[[Page 83266]]
analysis of the costs and benefits of final Sec. Sec. 201.102 and
201.104.
The poultry industry is highly vertically integrated. That is, a
single entity owns or controls nearly all the steps of poultry
production and distribution. Poultry production contracts reduce the
costs for live poultry dealers of negotiation with individual growers
over the purchase of individual flocks of poultry and relieve live
poultry dealers from the burden and risks of owning and maintaining
poultry houses. The growout portion of production is largely
accomplished through contract growers, who bear these burdens and
risks. Most poultry, and particularly broilers, are grown under
production contracts.
The USDA National Agricultural Statistics Service's (NASS) Census
of Agriculture (Agricultural Census) reported that 96.3 percent of
broilers were raised and delivered under production contracts in
2017.\124\ Live poultry dealers place chicks in poultry houses owned by
contract growers. Typically, live poultry dealers provide young
poultry, feed, medication, and harvest and transportation services to
these poultry growers, who house, feed, and tend the growing birds.
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\124\ USDA, NASS. 2017 Census of Agriculture: United States
Summary and State Data, (April 2019): 7, 56.
---------------------------------------------------------------------------
In order to grow poultry on a commercial scale, a poultry grower
must invest in poultry housing. The investment is often substantial.
Most farms have multiple houses, and the total investment required can
easily exceed $1 million. Also, the housing is built and equipped
specifically for the purpose of growing poultry. The costs of adapting
the housing for any other purpose can be prohibitive.\125\ Because the
live poultry dealers control most aspects of a grower's production,
growers are dependent upon the actions of the live poultry dealers to
recoup the grower's substantial and specific investment. This puts
growers in a particularly precarious position in which contract growers
have only a small number of live poultry dealers with whom to do
business in almost all geographic markets within the United States.
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\125\ For a discussion of the difficulty in adapting of broiler
grow houses for other purposes, see Vukina and Leegomonchai 2006,
Op. Cit.
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Broiler industry vertical integration leads to many risks being
borne by contract poultry growers. Due to the large investment required
of poultry growers, the financial risk of protecting that investment is
substantial. Because live poultry dealers maintain such heavy influence
over many key aspects of growers' production, growers have significant
exposure to liquidity risks, should flock placements and revenues fall.
Thus, contract poultry growers are subject to numerous risks
associated with live poultry dealers' control over key aspects of their
operations, such as the frequency and density of flock placements, and
the related risks of not having control over the genetic quality or
health of the chicks placed by the live poultry dealers. Live poultry
dealers control the scheduling of feed deliveries, which also can
impact feed conversion and thus grower pay. Also, production variables
such as bird target weights and growout periods are determined by the
live poultry dealer, further adding to the risks borne by contract
poultry growers.
Live poultry dealers benefit from poultry growing contracts by
having control over the quality and supply of inputs (birds) into the
processing plant while remaining free from many of the risks related to
capital investments in growing capacity, where those costs and
associated risks are borne by the growers. On the other hand, contracts
shift other risks from the grower to the live poultry dealer. With live
poultry dealers responsible for chick genetics, feed quality, and other
inputs (with the possible exception of fuel), changes in input prices
do not directly affect growers. Growers also do not bear the risks (or
enjoy the benefits) of price changes in the value of live poultry or
poultry meat, as they do not own the poultry or poultry meat and thus
do not sell it. Research on poultry growing contracts in the broiler
market has shown live poultry dealers to shift that variation in input
costs and output prices, which comprises up to 84 percent of the
variation in returns to broiler production.126 127
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\126\ C.R. Knoeber and W.N. Thurman, ``Don't Count Your Chicken
. . . : Risk and Risk Shifting in the Broiler Industry.'' American
Journal of Agricultural Economics 77 (1995): 486-496.
\127\ This research is regularly cited and reaffirmed in the
current economics literature including Tsoulouhas and Vukina (2001)
and McDonald (2014) that we cite elsewhere.
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The most common form of poultry growing contract is a relative
performance contract, also known as a ``tournament'' contract in the
industry. Tournament systems are a type of poultry contract under which
the live poultry dealer assigns each grower to a settlement pool, which
consists of all the growers' given flocks that the live poultry dealer
processed in a given week. The live poultry dealer provides the grower
with the production inputs of an initial supply of chicks and feed and
veterinary support throughout the growing period; the grower provides
the inputs of housing, water, electricity, labor, and management. At
the time of processing, the live poultry dealer collects the finished
broilers and calculates an average performance metric for the
settlement pool, typically the feed-conversion ratio or similar metric.
The grower's compensation under the tournament contract, is the sum of
a base payment, which typically depends on the total liveweight of the
finished birds and a payment or deduction based on the average
performance metric for the settlement pool. For most tournaments, the
payment or deduction formula is the difference between the grower's
performance metric and the settlement's average, subject to a scaling
multiplier. Production periods for poultry are sufficiently short that
a grower will typically be in several tournaments in a year.
Agricultural production is an inherently risky endeavor, and
returns have some level of risk no matter the marketing channel or
structural arrangement. For example, common production risks are
systematic risks common to all growers in a given geography (which may
coincide with a given tournament) such as weather or widespread
disease, feed quality, or genetic strains. Academic research finds that
where risks are likely to affect all growers in a region, compensation
is less likely to be adversely affected under a tournament contract
than it would be on a simple price per unit of weight contract.\128\
For example, if an unusual heat wave caused all growers in a tournament
to experience poorer feed conversion, all tournament growers may
require more feed and a longer grow period for their flocks to reach
the target weight. They would receive the same pay for the weight
produced, while not being penalized for the higher feed costs incurred
to produce that weight. Some aspects of the tournament system are not
necessary to account for these risks, however, and other contractual
arrangements may account for the same risks without the concerns
associated with the tournament system.
---------------------------------------------------------------------------
\128\ See, e.g., Theofanis Tsoulouhas and Tomislav Vukina.
``Regulating Broiler Contracts: Tournaments Versus Fixed Performance
Standards,'' American Journal of Agricultural Economics 83 (2001):
1062-1073.
---------------------------------------------------------------------------
As noted, no contract type will protect growers from all market
risks, and tournament contracts still leave growers exposed to some
common risks. For example, when plants had to reduce processing
capacity due to the COVID-19 pandemic, growers experienced
[[Page 83267]]
reduced compensation to the extent that they received fewer or less
dense placements from the live poultry dealers.
Tournament systems do not insulate growers from the other risks of
contracts discussed above such as financial risk, liquidity risk, the
risk from incomplete contracts, and the lack of control over inputs and
production variables. Tournaments also introduce new categories of
risks to growers, such as group composition risk and added risks of
settlement-related deception or fraud. The risks of deception or fraud
as discussed above include the inability of growers to verify the
accuracy of payments, and to detect discrimination or retaliation.
Group composition risk is the risk associated with the composition
and performance of other growers in their settlement groups. A
particular grower's pay is impacted by the performance of others in the
tournament. Growers have no control over the other tournament members'
effort and performance, nor over with which other growers they are
grouped. An individual grower's effort and performance can be static,
and yet that grower's payments could fluctuate based on the grower's
relative position in the settlement group. Further, changes in payment
may not be commensurate with the changes in grower's effort and
performance. These characteristics of the tournament system can add to
the variability of pay and affect the ability of growers to plan and
measure their own effort and performance. On the other hand, the system
is designed to incentivize participants to do their best in the hopes
of gaining higher rewards.
The integrators also determine which growers are in each settlement
group. While growers in a group must have similar flock finishing
times, a live poultry dealer could move a grower into a different
grouping by altering layout times to change the week that a grower's
broilers are processed. An individual grower may perform consistently
in an average performing pool, but if the live poultry dealer places
that grower in a pool with more outstanding growers, those outstanding
growers raise the group average and reduce the fees paid to the
individual. At its discretion or per the poultry growing arrangement, a
live poultry dealer may remove certain growers it considers to be
outliers from a settlement pool. This would likely affect the average
performance standard for the settlement and affect the remaining
growers' pay. Group composition risk can be more relevant to some
growers when a tournament's settlement group contains growers with
different quality or ages of grow houses.
In addition, the current documentation of tournament terms provides
little to no information on the expected variation between individual
payments over time. Providing the settlement formula alone does not
give growers a means by which they can predict total income over a
meaningful period. More generally, an individual grower cannot estimate
the variance in pay across periods with the same accuracy as the live
poultry dealer with which he or she contracts. Information provided
pursuant to this rule addresses this issue. Also, growers do not
currently receive information that allows them to understand the impact
of many live poultry dealer decisions made during the growout period
that may affect grower incomes. For example, live poultry dealers may
switch the genetics of chicks supplied to growers or change a feed
ration or supplier. Increased information required in settlement
disclosure regarding inputs and other factors will make it easier for
growers to assess the impacts of these decisions and improve their
ability to protect themselves against any systematic issues related to
those decisions.
Live poultry dealers benefit from tournaments systems, because they
provide live poultry dealers more control and certainty of the total
pay to all the growers in a settlement group. They also benefit from
the system if it disincentivizes shirking with respect to production
efficiency. However, the incentive to avoid shirking can be imparted in
a fixed performance standard contract as well.
There is asymmetry in the information available to live poultry
dealers and the growers with whom they contract. Some of the
information held by live poultry dealers would be valuable to growers
because it influences grower compensation in tournament contracts and
might help growers in negotiating contract terms and making decisions
about capital investments and flock management.
The contracts themselves are often incomplete and exhibit asymmetry
in the information available to live poultry dealers and contract
growers. Because live poultry dealers supply most of the inputs, much
of the production information is available to the grower only from the
live poultry dealer. For example, the contract grower may not know
precisely how much feed it used, or how much weight the flock gained
under his or her care, unless the live poultry dealer provides the
information.
Growers often lack negotiating leverage with live poultry dealers
to demand transparency and completeness in contracts. Most growers have
few live poultry dealers in their area with whom they can potentially
contract. The table below shows the number of live poultry dealers that
broiler growers have in their local areas by percent of total farms
(number of growers), total birds produced (number of birds), and total
production (pounds of birds produced).
---------------------------------------------------------------------------
\129\ MacDonald. (June 2014) Op. Cit.
\130\ MacDonald. (June 2014) Op. Cit. (Percentages were
determined from the USDA Agricultural Resource Management Survey
(ARMS), 2011. ``Respondents were asked the number of integrators in
their area, which was subjectively defined by each grower. They were
also asked if they could change to another integrator if they
stopped raising broilers for their current integrator.'' The 7
percent of those facing a single integrator assert that they could
change, presumably through longer distance transportation to an
integrator outside the area. Ibid. p. 29 and 30.)
Table 1--Live Poultry Dealers In Broiler Growers' Area \129\
----------------------------------------------------------------------------------------------------------------
Have additional
Integrators in grower's area \130\ Farms Broilers Production integrator in
area
----------------------------------------------------------------------------------------------------------------
Number.............................. Percent of total Percent of farms
---------------------------------------------------------------------------
1................................... 21.7 23.4 24.5 7
2................................... 30.2 31.9 31.7 52
3................................... 20.4 20.4 19.7 62
4................................... 16.1 14.9 14.8 71
>4.................................. 7.8 6.7 6.6 77
No Response......................... 3.8 2.7 2.7 Na
----------------------------------------------------------------------------------------------------------------
[[Page 83268]]
The data in the table show that 52 percent of broiler growers
(farms), accounting for 55 percent of broilers produced and 56 percent
of total production and, report having only one or two integrators in
their local areas. This limited integrator competition may accentuate
the contract risks. Even where multiple integrators are present, there
can be significant costs to switching, including owing to the
differences in technical specifications that integrators may require.
To switch, the growers likely may need to invest in new equipment and
learn to apply different operational techniques due to different
breeds, target weights and growout cycles.
Live poultry dealers hold information on how individual poultry
growers perform under a variety of contracts. The mean number of
contracts for the live poultry dealers filing annual reports \131\ with
AMS in 2021 was 472. The largest live poultry dealers contracted with
several thousand growers. Because live poultry dealers provide most of
the inputs to all the growers in each tournament, the live poultry
dealers have information about the quality of the inputs, while each
grower can know only what he or she can observe. A grower almost
certainly will not know about the inputs received by other growers.
Live poultry dealers also have historical information concerning
growers' production and income under many different circumstances for
all the growers with which they contract, while an individual grower,
like most other producers, has information concerning only its own
production and income.
---------------------------------------------------------------------------
\131\ All live poultry dealers are required to annually file PSD
form 3002 ``Annual Report of Live Poultry Dealers,'' OMB control
number 0581-0308. The annual report form is available to public on
the internet at https://www.ams.usda.gov/sites/default/files/media/PSP3002.pdf.
---------------------------------------------------------------------------
New growers entering the industry may have little or no experience
from which to draw information for forming expectations for future
input and maintenance costs or for evaluating the value of initial
capital expenditures. Experienced growers entering into new contracts
are limited to their own past experience to draw upon. Live poultry
dealers have information from all their contractors about performance,
costs, and expenditures.
Compensation based on relative performance when growers are not in
control of many of the inputs of production may create opportunities
for live poultry dealer deception. It is also difficult, especially for
new growers, to understand how compensation is likely to vary over time
as a result of tournaments and other terms that may not currently be
present in all contracts such as placement frequency and flock density.
This problem of incomplete contracts is of particular concern due to
the cost and lifespan of the capital required to be a poultry grower.
With incomplete contracts, at least one party will have
discretionary latitude to deviate from expectations.\132\ For example,
poultry production contracts often do not guarantee the number of
flocks a grower will receive even with long-term contracts, even though
this is critical information for understanding the value of the
contract to the grower.\133\ The type and frequency of required
upgrades to existing equipment and housing are often left to the
discretion of the live poultry dealer.
---------------------------------------------------------------------------
\132\ Steven Y. Wu and James MacDonald, ``Economics of
Agricultural Contract Grower Protection Legislation,'' Choices,
Third Quarter, 2015, pp 1-6.
\133\ MacDonald (June 2014) Op. Cit.
---------------------------------------------------------------------------
Hold-up is a problem that occurs in poultry production contracts
because the poultry grower's outlay of the significant capital
requirements of growing chickens results in specialized equipment and
facilities with little value outside of growing chickens. As a result,
growers entering the market are tied to growing chickens to pay off the
financing of the capital investment. Growers might fear that they will
be forced to accept unfavorable contract terms because they must
continue production to pay off lenders and have few, if any,
alternative live poultry dealers with which they can contract. This can
lead to underinvestment in the capital necessary to grow broilers.
Comments From the Proposed Rule and Changes to the Final Rule
After consideration of public comments, AMS determined to adopt the
proposed rule as a final rule with several modifications. In order to
make compliance with the final rule as easy as possible for regulated
entities, AMS reorganized the final rule by moving the new disclosures
required into revised Sec. 201.102 and new Sec. 201.104. In the final
rule, AMS removed the proposed revisions to Sec. 201.100 requiring all
live poultry dealers to provide certain additional disclosures to
prospective or current growers and placed the requirements in new Sec.
201.102. AMS also moved the requirements from proposed new Sec.
201.214 to new Sec. 201.104. This reorganization of the rule does not
impact the recordkeeping requirements or costs of the final rule.
A commenter representing the turkey industry noted the proposed
rule was largely based on research into the broiler industry. The
commenter asserted it would be extremely difficult for turkey companies
to implement the rule due to differences between turkey and chicken
production. Based on comments received to the proposed rule and AMS
further study, AMS has limited the applicability of final Sec. Sec.
201.102 and 201.104 to live poultry dealers engaged in the production
of broilers. The final rule does not apply to live poultry dealers
engaged in the production of turkeys, ducks, geese, and other domestic
fowl. The proposed rule considered the costs and benefits to all live
poultry dealers. This change reduced the number of live poultry dealers
to whom the final rule applies from 89 respondents made up of live
poultry dealers engaged in the production of broilers, turkeys, ducks,
geese, and other domestic fowl under the proposed rule to 42 live
poultry dealers engaged in the production of broilers in the final
rule. Accordingly, this change reduced the costs and benefits from the
proposed rule to the final Sec. Sec. 201.102 and 201.104. Existing
provisions of Sec. 201.100 continue to apply to live poultry dealers
engaged in the production of broilers, turkeys, ducks, geese, and other
domestic fowl. The new provisions of Sec. 201.102 and the new Sec.
201.104 apply only to live poultry dealers engaged in the production of
broilers. AMS made several other changes to the proposed rule that are
reflected in the final rule.
Live poultry dealers commented that the full cost of the proposed
rule would likely be many times greater than predicted by AMS. The
commenters asserted AMS greatly underestimated the costs of creating
the recordkeeping systems needed to comply with the proposed rule.
Commenters suggested that AMS underestimated the amount of time
required to create and maintain recordkeeping systems. They also
suggested that AMS did not adequately consider the IT and legal costs
or the cost of hiring compliance officers. Some live poultry dealers
indicated that the rule would promote frivolous lawsuits, and suggested
the requirement to list ongoing litigation would discourage settlement.
Some commenters also indicated that disclosures would undermine the
tournament payment system, forcing live poultry dealers to adopt less
efficient methods of compensation, which would increase the price of
chicken and ultimately increase inflation.
AMS consulted auditors and supervisors who are familiar with live
poultry dealers' records from many
[[Page 83269]]
years of experience with AMS in auditing live poultry dealers for
compliance with the Act. AMS expects that recordkeeping systems that
most live poultry dealers already have in place will enable them to
gather much of the information in the disclosures from records they
already have available to them and limit the necessity of developing
new recordkeeping systems. AMS made no changes to the information
collection requirements of the proposed rule based on this comment.
AMS proposed to require live poultry dealers to make various
financial disclosures to broiler growers, including a table showing
``average annual gross payments'' made to growers at all complexes
owned or operated by the live poultry dealer for the previous calendar
year, as well as to growers at the local complex. Poultry and meat
trade associations suggested AMS require dealers to disclose average
annual gross payments only for the grower's local complex. These
commenters noted that complexes in different geographic areas face
different economic conditions, arguing that information about payments
at other complexes would not be useful and would potentially confuse
growers. Therefore, AMS removed the proposed requirement disclose
payment information for all complexes owned or operated by the dealer.
AMS maintains the requirement for live poultry dealers engaged in the
production of broilers to disclose payment information only relating to
the broiler grower's local complex. Accordingly, this change reduced
the information collection burden on live poultry dealers from the
proposed to the final rule.
Growers and live poultry dealers also requested in comments that
AMS provide more specificity on how to calculate average annual gross
payments. While the proposed rule provided detail on calculations, the
commenters felt the instructions were not sufficiently specific to
assure that live poultry dealers could comply and that broiler growers
received adequate data on which to base business decisions. Therefore,
AMS developed more detailed instructions on how to calculate them. The
instructions are included in Form PSD 6100 (Live Poultry Dealer
Disclosure Document). AMS added a modest amount of time to its cost
estimates for live poultry dealers to review the instructions.
Several commenters recommended that AMS require the disclosure of
grower turnover data. Grower turnover rates relate to the general risk
of termination and non-renewal of contracts with a live poultry dealer.
This information would allow growers to compare the turnover rates of
multiple live poultry dealers as a risk factor when making contracting
decisions. Therefore, AMS added a provision of the final rule requiring
live poultry dealers engaged in the production of broilers to disclose
average annual broiler grower turnover rates for the previous calendar
year and the average of the 5 previous calendar years at both the
company level and the local complex level. AMS developed instructions
for how to calculate average annual broiler grower turnover rates. The
instructions are included in Form PSD 6100. AMS added a modest amount
of time to its cost estimates for live poultry dealers to review the
instructions and calculate grower turnover rates.
Numerous commenters from the grower and live poultry dealer sectors
expressed that these provisions should be in plain and unambiguous
language to avoid discrepancies in interpretation among the various
parties, regulators, and courts. Some commenters also indicated a need
to ensure growers who are not native speakers of English can understand
the disclosures.
Considering the comments, AMS added a provision at Sec.
201.102(g)(4) of the final rule to require live poultry dealers engaged
in the production of broilers to make reasonable efforts ensure that
growers are aware of their right to request translation assistance, and
to assist the grower in translating the Disclosure Document at least 14
calendar days before the live poultry dealer executes the broiler
growing arrangement, but the grower has the option to waive up to 7
calendar days of that time period. Reasonable efforts include but are
not limited to providing current contact information for professional
translation service providers, trade associations with translator
resources, relevant community groups, or any other person or
organization that provides translation services in the broiler grower's
geographic area. The rule would also prevent a live poultry dealer from
restricting a broiler grower or prospective broiler grower from
discussing or sharing the Disclosure Document for purposes of
translation with a person or organization that provides language
translation services. AMS also added a provision to Sec. 201.100
preventing live poultry dealers from restricting growers from sharing
the Disclosure Documents with legal counsel, accountants, family,
business associates, and financial advisors or lenders.
The proposed rule would have required live poultry dealers to
provide growers with copies of the Disclosure Document and a true
written copy of the contract 7 calendar days prior to executing the
contract. The final rule changes the 7-day requirement to a 14-day
requirement, but the broiler grower has the option to waive 7 calendar
days of that time period. These changes did not affect the estimation
of costs or benefits in the rule because growers retain the flexibility
to determine the length of time they need to review the documentation.
The proposed rule also would have required live poultry dealers to
obtain the broiler grower's or prospective broiler grower's dated
signature as evidence of receipt of the Disclosure Document or obtain
alternative documentation acceptable to the Administrator as evidence
of receipt. The final rule will require live poultry dealers to obtain
the broiler grower's or prospective broiler grower's dated signature as
evidence of receipt or obtain alternative documentation to evidence
delivery and that best efforts were used to obtain grower receipt. AMS
expects in either case live poultry dealers to engage in personal
communications with the grower and the delivery of the Disclosure
Document, resulting in comparable levels of effort by the live poultry
dealer. Accordingly, these changes did not affect the estimation of
costs or benefits in the rule.
In the proposed rule, AMS did not specifically propose to require
live poultry dealers to disclose their policies on grower payments with
respect to increased lay-out time, diseased flocks, natural disasters
and other depopulation events, feed issues or outages, or policies on
grower appeal rights and processes. Multiple commenters suggested AMS
include these disclosures. In the final rule, AMS added a provision at
Sec. 201.102(c)(4) requiring live poultry dealers engaged in the
production of broilers to disclose policies and procedures on increased
lay-out time; sick, diseased, or high early mortality flocks; natural
disasters, weather events, or other events adversely affecting the
physical infrastructure of the local complex or the grower facility;
other events potentially resulting in massive depopulation of flocks,
affecting grower payments; feed outages including outage times; and
grower complaints relating to feed quality, formulation, or
suitability, as well as any appeal rights arising out of these events.
AMS added a modest amount of time to its cost estimates for
[[Page 83270]]
live poultry dealers to comply with this new requirement.
AMS proposed in Sec. 201.100(f)(1)(i) to require live poultry
dealers to establish, maintain, and enforce a governance framework
reasonably designed to audit the accuracy and completeness of the
disclosures in the Disclosure Document, which must include audits and
testing, as well as reviews of an appropriate sampling of Disclosure
Documents by the principal executive officer or officers.
AMS determined that the requirement in Sec. 201.102(f)(2) for the
principal executive officer or officers to certify the governance
framework and the accuracy of the Disclosure Document adequately covers
the intended requirement for officers of this level to be focused on
the effectiveness of the governance framework. AMS concluded that this
level of detail about the audit process for the Disclosure Document was
not necessary, particularly as AMS seeks to balance the need to ensure
reliability of these statements with the burden on the principal
executive officers regarding details of the governance process.
Therefore, AMS removed the proposed requirement for audit, testing, and
reviews of an appropriate sampling of Disclosure Documents by the
principal executive officer or officers, which reduces the burden on
regulated entities.
AMS expects Sec. Sec. 201.102 and 201.104 to mitigate costs
associated with asymmetric information by requiring live poultry
dealers to disclose more and potentially valuable information to
growers. Section 201.102 requires live poultry dealers engaged in the
production of broilers to make disclosures before entering into new
contracts, renewing existing contracts, or requiring growers to make
additional capital investments. Section 201.104 requires live poultry
dealers engaged in the production of broilers to disclose additional
information at the placement and settlement of each flock.
AMS considered three alternatives to the final Sec. Sec. 201.102
and 201.104. The first is ``do nothing'' or the status quo. All
regulations under the Act would remain unchanged. It forms the baseline
against which the second alternative, Sec. Sec. 201.102 and 201.104
will be compared. The rule removes portions of the current Sec.
201.100, which already requires disclosure from live poultry dealers,
and replaces them with a more extensive set of disclosure requirements
in Sec. 201.102 that only apply to live poultry dealers engaged in
broiler production. Since the cost and benefit analysis are compared to
the cost and benefits status quo, costs and benefits estimated here
reflect only cost and benefits associated with the new requirements in
Sec. Sec. 201.102 and 201.104.
AMS considered a third alternative similar to Sec. Sec. 201.102
and 201.104. The alternative would leave all of the requirements in
Sec. Sec. 201.102 and 201.104 the same, but entirely exempt live
poultry dealers engaged in broiler production that process less than 2
million pounds per week. This third alternative would exempt smaller
live poultry dealers, some of which might not have sophisticated
records. However, since larger growers do most of the contracting (as
quantified later in this analysis), most broiler growers would still
receive the disclosures. AMS then estimated and compared the costs and
benefits of the alternatives and selected Sec. Sec. 201.102 and
201.104 as the preferred alternative to finalize.
Discussion of the Benefits of the Regulations
The primary purpose of the final rule is to make information
available to broiler growers when that information would be most
important in decision-making. Currently, most broiler production
contracts are incomplete, and providing more information would likely
lower the uncertainty the grower faces over their revenue and profit
estimates. In addition, growers lack negotiating leverage with live
poultry dealers to demand, among other things, transparency, and
completeness in contracts. A benefit of this regulation is that by
providing prospective growers and those contemplating additional
capital investments better information on expected returns, growers
should be able to make more informed business decisions and can more
readily avoid entering into contracts that are not financially
sustainable. The regulation still retains the rights of broiler growers
to discuss the terms of the broiler growing arrangement and the
Disclosure Document with other growers for the same live poultry
dealer, advisors, and governmental agencies even if the broiler growing
arrangement contains a confidentiality provision. This facilitates
better information sharing, decision making, and risk management. By
alleviating market failures, disclosures may help the market for grower
services function better and help growers benefit from competition in
the market for their services.
Better information on live poultry dealer commitments should reduce
hold-up concerns that may stifle investment by growers. Better
information and transparency on placements and settlements could reduce
grower concerns over live poultry dealer manipulation of inputs and
reduces the potential for deception or fraud, and the high degree of
control and influence that the live poultry dealer has over many, if
not most, of the critical inputs that will determine the business
success of the grower's operation.
Alternatively, the placement and settlement information could
provide broiler growers with concrete information they can use to
support, individually or collectively, any grievances they might have
with a particular live poultry dealer. At the same time, this
regulation provides growers a measure of protection against risks of
retaliation or discrimination that may arise from disputes with live
poultry dealers during the course of the broiler growing arrangement.
Section 201.102 lays out the information that a live poultry dealer
is required to provide to broiler growers contemplating a relationship
with that live poultry dealer. The disclosure of information is
required whenever a live poultry dealer seeks to renew, revise, or
replace an existing broiler growing arrangement. In addition, such
disclosure is required for any new contract as well as whenever a live
poultry dealer is requiring an original capital investment or a change
to existing housing specifications that require an additional capital
investment. These are the times when the information will be most
useful in informing broiler growers of the potential implications of
entering into a contract with the live poultry dealer or contemplating
additional investment in capital stock. This information allows
potential growers to make more informed and financially sustainable
business decisions. Inaccurate information provided in disclosure to
growers, and other bait-and-switch tactics, such as making a material
policy change but not through a new or revised contract, would be a
deceptive practice and would constitute a violation of this section and
Sec. 202(a).
When a live poultry dealer requires a broiler grower to make a
capital investment, the dealer is required to provide the grower with
the capital specifications they are required to meet and with a letter
of intent sufficient to seek financing, as well as a full disclosure of
the terms of the agreement. This information allows more informed
investment decisions and help potential lenders accurately assess risk.
The Disclosure Document provides information on the length of the
contract, number of guaranteed placements, stocking density, and
notification of certain risks inherent in
[[Page 83271]]
the agreement. All this information helps to evaluate the longer-term
viability of the investment and reduce hold-up fears.
Grower awareness of minimum flock placements and minimum stocking
densities enables growers to more accurately estimate the risks and
returns associated with their operations including debt management,
cash flow, and other risks. It may enable growers, as well as financial
institutions, to better estimate and manage risk, potentially including
the acquisition of external insurance and risk management products.
In addition to information about the specific terms of the
contract, information is provided to inform growers about the live
poultry dealer's financial history and history of grievances with
growers with whom they have contracted. This information also improves
growers' ability to evaluate their decisions and the potential for
hold-up related concerns.
The Disclosure Document includes information on the level and
distribution of payments made to broiler growers under contract to the
live poultry dealer. It describes past and expected future annual
returns for similarly situated growers based on the complex and the
live poultry dealer's other complexes with the same housing
specifications. It presents returns at various levels of performance,
as not all growers perform equally relative to the fixed cost of entry,
making it easier for potential growers to estimate their revenues from
the contract. The Disclosure Document also provides insights into the
variability of cash flow within any given year to enable the grower to
improve business decision-making and manage risk. The increased
information in the Disclosure Document on the expected levels and
distributions of payments has the added benefit of lowering the
uncertainty of revenue streams for contract broiler growers.
The reliability of these disclosures would be reinforced by a
governance framework and anti-fraud protections. In presenting this
information to growers, the Disclosure Document reduces information
asymmetry and the risk of fraud and deception. As a result, prospective
growers and those contemplating additional capital investments have
more confidence in the integrity of the information and consequently in
their ability to make sound decisions.
A live poultry dealer is required to provide the Disclosure
Document to growers prior to their entering into an agreement to allow
time to discuss the terms of the agreement with advisors, lawyers,
business associates, bankers, USDA, or other extension organizations to
obtain assistance in evaluating the agreement.
Section 201.104 requires additional ongoing disclosure of
information related to broiler grower ranking pay systems
(``tournaments''). This information is focused on the actual
distribution of inputs to growers at the time of placements and the
outcomes of the ranking system. Some of this information improves
growers' ability to manage the flocks under their care, while other
information helps growers to evaluate the factors affecting the outcome
of the ranking system.
Lack of transparency in the tournament calculations has led to
risks by growers relating to the potential for fraud and deception.
These include grower inability to verify the accuracy of payments, to
measure and manage risks, and to detect possible discrimination or
retaliation for disputes arising under the broiler growing arrangement.
The provision of additional transparency around tournament systems in
this regulation is designed to address those risks. Provision of
information regarding consistency of inputs (both at the time of
placement and at the time of settlement), and any adjustments to
methods or formulas, will foster more transparent, accurate, reliable,
and widely accepted tournaments, and greater ability to monitor and
hold live poultry dealers accountable for divergences from high
standards of market integrity.
Broiler growers who participate in numerous tournaments over time
will benefit from the added information they receive at the time of
placement and settlement, as they will gain experience and knowledge
useful in maximizing their growout performance. Because live poultry
dealer-provided inputs may vary from flock-to-flock, growers may
enhance their knowledge and improve management practices and skills
with access to input distribution information, particularly at the
stage when the input is provided. The increased information in the
settlement and placement disclosures will allow growers to assess the
impacts of input variability on revenues over time, which will also
serve to lower the uncertainty of revenue streams. Growers armed with
this information may be better able to efficiently allocate resources,
reduce uncertainty of revenue streams, and maximize their individual
profitability.
Confidentiality restrictions have historically prevented broiler
growers from releasing details of contract pay and performance, thus
limiting the availability of comprehensive data with which to consider
the effects of alternative regulatory and institutional structures on
market performance.\134\ Subsequently, the literature on these topics
is insufficient to allow AMS to fully estimate the magnitude of the
inefficiencies corrected by the rule, nor the degree to which the
disclosure requirements and additional grower protections will address
them. Though AMS is unable to completely quantify the benefits of the
regulations, this analysis explains numerous benefits derived from
increased information, reduced information asymmetries, and reduction
in risk of deception by live poultry dealers. Each of the disclosures
required under Sec. Sec. 201.102 and 201.104 of the rule provides
information that will be useful to growers in making more informed
decisions and reducing concerns resulting from lack of access to
information.
---------------------------------------------------------------------------
\134\ For instance, the analysis of MacDonald (2014), MacDonald
and Key (2014), and Vukina and Leegomanchai (2006) (Op. Cit.) relies
on data from grower surveys. Knoeber and Thurman (1995) relies on
contract settlement data from a single integrator.
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AMS estimated the industry benefits in two parts, one quantifiable
and the other non-quantifiable. For the quantifiable part, AMS will
provide a minimum value of the benefit to broiler growers from the
additional information in the disclosures required under Sec. Sec.
201.102 and 201.104 and will refer to this minimum benefit as
Gmin.
The quantifiable minimum benefit of the financial, placement, and
settlement disclosures, Gmin, arises from the additional
information available to growers that serves to lower the uncertainty
in revenue streams of contract growers. Lower uncertainty in revenue
streams results in a reduction in revenue risks to growers. According
to economic principles, a risk averse grower will benefit economically
from a reduction in revenue risk.\135\ AMS quantifies the benefit to
growers from the reduction in revenue risk by estimating the Risk
Premium (RP) to contract broiler growers from reducing variability of
their net revenues from the disclosures. AMS will then use RP as
Gmin, the quantifiable minimum benefit of the disclosures.
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\135\ A risk averse grower prefers revenue streams with low
uncertainty to revenue streams with high uncertainty when both have
the same mean return.
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However, Sec. Sec. 201.102 and 201.104 have additional, other non-
quantified benefits to growers and live poultry dealers, referred to as
BO.\136\ These other benefits arise from a reduction in risk
of retaliation by allowing growers to share
[[Page 83272]]
information even if the growing arrangement contains a confidentiality
provision and reducing the potential for fraud and deception by live
poultry dealers by providing better, more accurate, and verifiable
information to growers. These other benefits may lead to an improved
allocation of capital and labor resources (such as increased capital
investment through the reduction in perceived hold-up risk, and more
informed decisions on whether and with whom to enter into a growing
arrangement), leading to improved efficiencies and an improved
allocation of resources for broiler growers and live poultry dealers.
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\136\ In the context of this analysis, ``non-quantified'' is
defined to include measures which are quantitative in principle but
whose value cannot be estimated at present.
---------------------------------------------------------------------------
AMS refers to the total benefits to the industry as BT,
which is the sum of the quantified Gmin, and the non-
quantified BO, benefits or, BT = Gmin
+ BO. AMS is not able to fully quantify the total benefits,
BT, from improved grower information, more informed
decision-making, reduced revenue uncertainty, grower risk reductions,
and an improved allocation of resources. The benefits AMS was able to
quantify exceed the costs AMS was able to quantify.
AMS expects that the effects on the industry from the final rules
will be very small in relation to the total value of industry
production. In other words, AMS expects the impacts on total industry
supply to be immeasurably small, leading to immeasurably small indirect
effects on industry supply and demand, including price and quantity
effects.
Estimation of Costs and Benefits of the Regulations
AMS estimated costs and benefits for two alternatives. The first is
the Sec. Sec. 201.102 and 201.104, which is the preferred alternative.
The second alternative is the same as Sec. 201.102 and 201.104 with a
complete exemption for live poultry dealers engaged in broiler
production that process fewer than 2 million pounds per week. Both are
compared against a baseline of status quo, which has no costs or
benefits.
The quantified costs of Sec. Sec. 201.102 and 201.104 primarily
consist of the time required to gather the information and distribute
it among the broiler growers. These costs of the rule will fall on live
poultry dealers as they collect and disseminate the required
information, and on broiler growers based on the value of the time they
put into reviewing the disclosures. Though broiler growers are expected
to incur costs in reviewing the information, they would be the primary
beneficiaries of the information, which would be reflected in their
ability to make more informed decisions. The broiler growers must
review the information in order to realize the benefits. This may
result in a more efficient allocation of capital to the broiler growing
industry.
There were 42 live poultry dealers to which the rule would apply
that filed annual reports \137\ with AMS, and their reports indicate
that they had 19,808 contracts with 16,524 broiler growers during their
fiscal year 2021.
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\137\ All live poultry dealers are required to annually file PSD
form 3002 ``Annual Report of Live Poultry Dealers,'' OMB control
number 0581-0308. The annual report form is available to public on
the internet at https://www.ams.usda.gov/sites/default/files/media/PSP3002.pdf.
---------------------------------------------------------------------------
AMS expects the total costs and benefits would be very small
relative to the size of the market. Chicken sales in the U.S. for 2019
were approximately $58.6 billion. The total quantified costs of
Sec. Sec. 201.102 and 201.104 are estimated to be greatest in the
first year at $3.4 million, or 0.006 percent (six thousandths of one
percent) of revenues. Although an increase in cost of six-thousandths
of a percent of sales could reduce supply, the reduction would be
extremely small and would not measurably alter broiler supply.
Provisions of final Sec. 201.202 and 201.204 require only disclosures
to growers. Neither requires any changes in the way live poultry
dealers or broiler growers produce or process broilers. Given the
nature of the rule, AMS expects that neither live poultry dealers nor
broiler growers would measurably change any production practices that
would impact the overall supply of broilers.
Expected quantified costs are estimated as the value of the time
required to produce and distribute the disclosures required by
Sec. Sec. 201.102 and 201.104 as well as the time required to create
and maintain any necessary additional records. AMS's experience in
reviewing live poultry dealers' records indicates that most live
poultry dealers already keep nearly all of the required records.
Final Sec. 201.102 requires live poultry dealers disclose
information to broiler growers concerning the growout contract, capital
investments, grower earnings, recent litigation, recent bankruptcies,
and live poultry dealers' policies concerning events such as disasters
or feed outages that might occur during the growout period. The
disclosures will require live poultry dealers to retain records, but
AMS experience in reviewing live poultry dealers' records indicates
that most live poultry dealers already keep nearly all of the necessary
records.
Paragraph (a) of final Sec. 201.102 requires live poultry dealers
to provide a true copy of a new contract as well as a Disclosure
Document that is defined in the remaining paragraphs. When the new
contract is associated with new housing or changes in the housing live
poultry dealers are also required to provide a letter of intent that
growers can present to lenders. Paragraph (b) of the final Sec.
201.102 requires live poultry dealers to disclose certain terms of the
contract including the live poultry dealer's contact information,
length of the term of the agreement offered, annual minimum number of
placements, and minimum stocking density. AMS is aware that live
poultry dealers already keep copies of contracts because AMS commonly
reviews growout contracts on letters of intent during live poultry
dealer compliance reviews.
Paragraph (c) of final Sec. 201.102 requires live poultry dealers
to disclose a summary of litigation and bankruptcies in the last 5
years. Although AMS does not commonly review records of past
bankruptcies or litigation in live poultry dealer compliance reviews,
courts keep records of litigation and bankruptcies that would enable
live poultry dealers to disclose the required summaries. Paragraph (c)
also requires live poultry dealers to disclose their policies
concerning a number of events that could occur during the term of the
contract, including increased layout times; high mortality birds,
natural disasters, weather events, or other events adversely affecting
the physical infrastructure of the local complex or the grower
facility; depopulation of birds; feed outages; grower complaints
concerning feed. In the event that the live poultry has no policy,
paragraph (c) requires the live poultry dealer to disclose that it has
no policy. AMS commonly reviews the types of policies in paragraph (c)
of final Sec. 201.102, and AMS expects that live poultry dealers that
have the relevant policies will have records of them.
Paragraph (d) of final Sec. 201.102 requires records of annual
turnover rates for the last 5 years and annual gross payments per
square foot by complex and housing type. Current regulations under the
Act generally require live poultry dealers to retain payment records
for at least 2 years,\138\ and as noted below the final rule requires
payment records under final Sec. 201.104(a) be retained for 5 years.
Some disclosures required under final
[[Page 83273]]
Sec. 201.102 will inherently necessitate that the companies keep
records sufficient to produce and substantiate the disclosure. For
example, the dealer would need to keep the last 5 years of litigation
records to support a disclosure about its litigation history. As a
result, some live poultry growers may need to keep payment records for
a longer period of time than they do today, but AMS experience
indicates that most live poultry dealers already keep the records for a
longer period. Live poultry dealers keep lists of the growers under
contract, and AMS reviews indicate that most keep list of growers for
at least 5 years.
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\138\ Section 401 of the Act and 9 CFR 201.94, 201.95, and
203.4.
---------------------------------------------------------------------------
Paragraph (f) of Sec. 201.102 requires live poultry dealers to
create a governance framework to ensure the accuracy of the disclosure
documents and paragraph (g) requires live poultry dealers to keep a
receipt from growers indicating that the grower received the disclosure
document. The records required in paragraphs (f) and (g) would be
records that live poultry dealers currently do not keep. Live poultry
dealers will need to develop new recordkeeping systems to retain them.
Paragraph (a) of final Sec. 201.104 requires live poultry dealers
to retain payment records for 5 years. Current regulations require live
poultry dealers to retain records for 2 years. Some live poultry
growers may need to keep payment records for a longer period of time as
result of the rule, but AMS experience indicates that most live poultry
dealers already keep the records for a longer period. The remainder of
final Sec. 201.104 requires live poultry dealers to disclose
information to poultry growers about flocks placed with each grower,
including when the flocks are placed and when the live poultry dealers
make payment for raising the flocks.
Paragraph (b) requires live poultry dealers to make disclosures
when flocks are placed with the broiler grower. Paragraph (c) requires
live poultry dealers to make disclosures when the live poultry dealer
makes payment to the broiler grower. Paragraph (b) and (c) requires the
live poultry dealer to retain records for each flock of the stocking
density, ratios of the breeds delivered in the flock, ratios of each
sex in the lot if the live poultry dealers has determined it, age of
the breeder flock, known health impairments in the breeder flock, and
adjustments that live poultry dealers make to a grower's payment based
on any of the disclosed information. Paragraph (c) also requires live
poultry dealers to disclose the number feed outages that lasted more
than twelve hours at each grower's facility.
Paragraphs (b) and (c) require live poultry dealers to maintain the
same type of records that AMS commonly requests from live poultry
dealers during compliance reviews,\139\ and are records that most live
poultry dealers already retain. An exception would be live poultry
dealers that purchase chicks from outside hatcheries, as they may not
already be retaining records concerning the breeder flock. The records
would be available from the hatchery, but some live poultry dealers may
have to keep records that they do not otherwise keep.
---------------------------------------------------------------------------
\139\ AMS routinely conducts reviews of live poultry dealers for
compliance with the Packers and Stockyards Act and regulations. Some
of the applicable regulations in live poultry compliance reviews
include Sec. 201.43 Payment and accounting for livestock and live
poultry; Sec. 201.49 Requirements regarding scale tickets
evidencing weighing of livestock, live poultry, and feed; Sec.
201.71 Scales and or Electronic Evaluation Devices or Systems;
accurate weights and measures, repairs, adjustments or replacements
after inspection; Sec. 201.73 Scale operators to be qualified;
Sec. 201.82 Care and promptness in weighing and handling livestock
and live poultry; Sec. 201.95 Inspection of business records and
facilities; Sec. 201.100 Records to be furnished poultry growers
and sellers; Sec. 201.108-1 Instructions for weighing live poultry
or feed; Sec. 201.211 Undue or unreasonable preferences or
advantages; Sec. 201.215 Suspension of delivery of birds; Sec.
201.216 Additional capital investments criteria; and Sec. 201.217
Reasonable period of time to remedy a breach of contract among
others.
---------------------------------------------------------------------------
Although live poultry dealers will need to keep considerable
amounts of records to comply with the disclosures required in final
Sec. Sec. 201.102 and 201.104, live poultry dealers already retain
most of the records necessary. Live poultry dealers will need to create
relatively few new records beyond those that they already retain, and
AMS expects that additional costs to live poultry dealers associated
with creating and maintaining records will be relatively small.
AMS also estimates the amount of time that broiler growers would
take to review the information provided to them by live poultry
dealers. Estimates of the amount of time required by live poultry
dealers to create and distribute the disclosures and for growers to
review the information were provided by AMS subject matter experts.
These experts were supervisors and auditors with many years of
experience in working with growers and with auditing live poultry
dealers for compliance with the Act. Estimates for the value of the
time are U.S. Department of Labor (DOL) Bureau of Labor Statistics
(BLS) Occupational Employment and Wage Statistics (OEWS) released May
2022.\140\ Occupations used in the estimation were Executive
Secretaries and Executive Administrative Assistants (occupation code
43-6011) for live poultry dealers' administrative assistants, General
and Operations Managers (Occupation code 11-1021) for live poultry
dealers' managers, Lawyers (occupation code 23-1011) for attorneys for
live poultry dealers and for growers, Agricultural Workers (occupation
code 45-2090), Computer and Information Systems Managers (occupation
code 11-3021), Software and Web Developers, Programmers, and Testers
(occupation code 15-1250) for information technology managers,
Accountants and Auditors (occupation code 13-2011) for accountants for
live poultry dealers, Bookkeeping, Accounting, and Auditing Clerks
(occupation code 43-3031) for bookkeepers for live poultry dealers, and
Management Occupations (occupation code 11-0000) for poultry growers.
---------------------------------------------------------------------------
\140\ See U.S. Bureau of Labor Statistics, May 2021 National
Occupational Employment and Wage Estimates, May 2021. https://www.bls.gov/oes/current/oes_nat.htm#00-0000.
---------------------------------------------------------------------------
AMS marked up the wages 41.82 percent to account for benefits. This
results in a cost per hour of $41.71 ($29.41 x 1.4182) for live poultry
dealers' administrative assistants, $84.27 ($59.42 x 1.4182) for live
poultry dealers' managers, $131.38 ($92.64 x 1.4182) for attorneys for
live poultry dealers and for growers, $92.91 ($65.51 x 1.4182) for
information technology managers, $56.27 ($39.68 x 1.4182) for
information technology staff, $49.98 ($35.24 x 1.4182) for accountants
for live poultry dealers, $27.44 ($19.35 x 1.4182) for bookkeepers for
live poultry dealers, and $60.70 ($42.80 x 1.4182) for poultry growers.
Costs of Sec. 201.102
Section 201.102 lists several new disclosure and recordkeeping
requirements for live poultry dealers engaged in the production of
broilers. These new and extended requirements are in additional to
those already included in current Sec. 201.100 that would create
additional costs above the status quo.
The new provisions in Sec. 201.102 require large live poultry
dealers to disclose a true written copy of the growing agreement and a
new Disclosure Document any time a live poultry dealer seeks to renew,
revise, or replace an existing broiler growing arrangement that does
not contemplate modifications to the existing housing specifications.
Small live poultry dealers that process less than 2 million pounds of
broilers per week are excluded from this disclosure requirement. Before
a live poultry dealer enters a broiler growing arrangement that would
require an original capital
[[Page 83274]]
investment or requires modifications to existing housing, both large
and small live poultry dealers must provide a copy of the broiler
growing agreement, the housing specifications, a letter of intent, and
the new Disclosure Document.
The Disclosure Document requires live poultry dealers to disclose
summaries of litigation over the prior five years with any broiler
growers, bankruptcy filings, and the live poultry dealer's policy
regarding a grower's sale of the farm or assignment of the contract.
Live poultry dealers are required to disclose growers' variable
costs if it collects the information. Live poultry dealers are required
to establish, maintain, and enforce a governance framework that is
reasonably designed to audit the information to ensure accuracy, ensure
compliance with the Act, and obtain and file signed receipts certifying
that the live poultry dealer provided the required Disclosure Document.
Section 201.102 requires live poultry dealers to include a
statement in the disclosure document describing existing policies and
procedures, as well as any appeal rights arising from increased lay-out
time; sick, diseased, and high early mortality flocks; natural
disasters, weather events, or other events adversely affecting the
physical infrastructure of the local complex or the grower facility;
other events potentially resulting in massive depopulation of flocks,
affecting grower payments; feed outages including outage times; and
grower complaints relating to feed quality, formulation, or
suitability. If no policy and procedures exist, the live poultry dealer
will acknowledge ``no policy exists''.
The Disclosure Document requires specific financial disclosures to
broiler growers. The first required disclosure is a set of tables
showing average annual gross payments in U.S. dollars per farm facility
square foot in each quintile or mean and standard deviation to broiler
growers for each of the 5 previous years, organized by housing
specification at each complex. Based on comments received to the
proposed rule, AMS has provided instructions in the final rule for
calculating average annual gross payments in each quintile or mean and
standard deviation. The second required disclosure is a table showing
the average annual broiler grower turnover rates for the previous
calendar year and the average of the 5 previous calendar years at a
company level and at a local complex level.
AMS estimates the aggregate one-time costs of setting up the
Disclosure Document will require 4,128 management hours, 1,512 legal
hours, 1,016 administrative hours, and 1,079 information technology
hours costing $689,000 in the first year for live poultry dealers to
initially review the regulation and set up the Disclosure
Document.141 142 A more detailed explanation of the one-time
first-year costs associated with Sec. 201.102 is in Table 1 in
Appendix 1.
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\141\ Average hourly wage rates used to estimate dealer costs
include a 41.82% markup for benefits and are as follows:
Management--$93.20, Legal--$113.80, Administrative--$39.69, and
Information Technology--$82.50.
\142\ The one-time set-up costs are not equal to the first-year
costs of Sec. 201.102 because the first-year costs include the one-
time set-up costs and the ongoing costs that would be incurred in
the first year as contracts are renewed, revised, or originated.
---------------------------------------------------------------------------
AMS expects the ongoing costs of updating and distributing the
Disclosure Document to growers renewing or revising existing contracts,
new growers entering into contracts, existing growers required to make
additional capital investments to require in aggregate 2,061 management
hours, 273 legal hours, 836 administrative hours, and 805 information
technology hours to produce and distribute to growers the gross payment
disclosure information annually for an aggregate annual cost of
$319,000 to live poultry dealers. AMS expects the total cost of
producing the annual gross payment disclosure information to consist of
$689,000 in the first year to set up the systems and controls, plus
$319,000 in costs the first year and annually thereafter to compile,
distribute, and maintain the disclosure data and documents. Thus, the
first-year aggregate total costs of Sec. 201.102 to live poultry
dealers are expected to be $1.0 million and then $319,000 annually on
an ongoing basis. A more detailed explanation of the ongoing costs
associated with Sec. 201.102 is in Table 2 in Appendix 1.
With the exception of signing a receipt--itself not mandatory--the
rule does not impose any requirement on broiler growers to review the
information provided by live poultry dealers. However, to benefit from
the Disclosure Document, growers will need to review the information
provided. According to AMS subject matter experts, broiler growers will
spend the most time on their first review of the Disclosure Document in
order to understand the information and then spend less time reviewing
subsequent disclosures. For Sec. 201.102 (a)(1), AMS expects that
growers will take about one hour to review the documents each time
documents are disclosed to them in the first year. Live poultry dealers
processing fewer than an average of 2 million pounds of broilers weekly
will be exempt from the reporting requirements, but large live poultry
dealers are required to provide disclosures to growers for each of
19,417 \143\ contracts that come up for renewal in the first year. AMS
expects that 74.71 percent of the contracts will require renewal in the
first year. This includes all flock-to-flock contract, one-year
contracts, and the portion of the longer-term contracts that will
expire in the first year. At an hourly wage of $60.70 AMS expects the
requirements associated with Sec. 201.102 (a)(1) will cost about
$881,000 \144\ in the aggregate in the first year. After the first
year, as broiler growers get familiar with the disclosures, AMS expects
growers to spend less time reviewing the documents. AMS expects growers
to take about five minutes reviewing each Disclosure Document for an
aggregate cost of $73,000 \145\ per year.
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\143\ Live poultry dealers processing an average of more than
2,000,000 pounds of broiler per week, reported a combined 19,417
broiler contracts in their fiscal year 2021 annual reports to AMS.
All live poultry dealers are required to annually file PSD form 3002
``Annual Report of Live Poultry Dealers,'' OMB control number 0581-
0308. The annual report form is available to public on the internet
at https://www.ams.usda.gov/sites/default/files/media/PSP3002.pdf.
\144\ 1 hour to review each disclosure x $60.70 per hour x
19,417 contracts x 74.71 percent of the contracts renewed in the
first year = $880,541.
\145\ 1/12 hour to review each disclosure x $60.70 per hour x
19,417 contracts x 74.71 percent of the contracts renewed in the
first year = $73,378.
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For the remaining contracts that will not be renewed in the first
year, AMS expects that 5 percent of the contracts will be renewed in
each of the next five years for a yearly cost of $59,000.\146\
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\146\ 1 hour to review each disclosure x $60.70 per hour x
19,417 contracts x 5 percent of the contracts renewed per year =
$58,931 per year.
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Section 201.102 (a)(2) and (3) will only apply to broiler growers
that are new entrants requiring an original capital investment and to
broiler growers making significant capital improvements. AMS expects
that each of these groups of growers will account for 5 percent of the
20,000 \147\ contracts live poultry dealers reported in their annual
reports to AMS. If growers require one hour at $60.70 per hour,
growers' aggregate costs will be $60,000 \148\ for reviewing documents
required in Sec. 201.102(a)(2) and an
[[Page 83275]]
additional $60,000 \149\ for reviewing documents required in Sec.
201.102(a)(3) in the first year and in each successive year.
---------------------------------------------------------------------------
\147\ Live poultry dealers reported a combined total of 19,808
contracts for their fiscal year 2021. Smaller live poultry dealers
would not be exempt from reporting requirements in Sec.
201.102(a)(2) or (3).
\148\ 1 hour to review each disclosure x $60.70 per hour x
19,808 contracts x 5 percent of growers that are new entrants =
$60,117.
\149\ 1 hour to review each disclosure x $60.70 per hour x
19,808 contracts x 5 percent of growers that require significant
housing upgrades = $60,117.
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AMS estimates growers' aggregate costs for reviewing and
acknowledging receipt of disclosures associated with Sec. 201.102 to
be $1.2 million in the initial year, $253,000 through year five, and
then $194,000 in each succeeding year.\150\ The costs will decline
after year five because AMS expects that all contracts will have been
renewed by the end of year five and that all growers would have
reviewed the Disclosure Document at least one time by year six. The
Agricultural Census reports that there were 16,524 contract broiler
growers in the United States in 2017.\151\
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\150\ The average hourly wage rate used to estimate broiler
grower costs includes a 41.56% markup for benefits and is as
follows: Management--$70.94.
\151\ USDA, NASS. 2017 Census of Agriculture: United States
Summary and State Data, (April 2019).
---------------------------------------------------------------------------
The ten-year total costs of Sec. 201.102 to all 42 of the affected
live poultry dealers are estimated to be $3.9 million and the present
value (PV) of the ten-year total costs to be $3.4 million discounted at
a 3 percent rate and $2.9 million at a 7 percent rate. The aggregate
annualized costs of the PV of ten-year costs to live poultry dealers
discounted at a 3 percent rate are expected to be $398,000 and $411,000
discounted at a 7 percent rate.
The ten-year aggregate total costs of Sec. 201.102 to broiler
growers are estimated to be $3.2 million and the present value of the
ten-year total costs to be $2.8 million discounted at a 3 percent rate
and $2.5 million at a 7 percent rate. The annualized costs of the PV of
ten-year costs to broiler growers discounted at a 3 percent rate are
expected to be $331,000 and $351,000 discounted at a 7 percent rate.
The ten-year aggregate total costs of Sec. 201.102 to live poultry
dealers and broiler growers are estimated to be $7 million. The present
value of the ten-year total costs are estimated to be $6.2 million
discounted at a 3 percent rate and $5.4 million at a 7 percent rate.
The annualized costs of the PV of ten-year costs to live poultry
dealers and broiler growers discounted at a 3 percent rate are expected
to be $728,000 and $762,000 discounted at a 7 percent rate.
Costs of Sec. 201.104
Disclosures that are required in Sec. 201.104 are associated with
poultry grower ranking systems. At the time of broiler placement, Sec.
201.104 requires live poultry dealers to disclose information about
inputs, such as stocking density, breed and breeder flock information
for each flock placed with a grower within 24 hours of flock placement.
At the time of settlement, it requires the live poultry dealer to
disclose information about the housing specifications for each grower
grouped or ranked during the specified period and the distribution of
inputs to each grower in each tournament for each flock settled in the
tournament system.
AMS estimates that the live poultry dealers' one-time aggregate
costs of reviewing the regulation and developing the placement and
settlement disclosure documents will require 630 management hours, 462
administrative hours, and 1,764 information technology hours costing
$236,000 in the first year to initially set up the disclosure documents
required by Sec. 201.104.\152\ A more detailed explanation of the one-
time first-year costs associated with Sec. 201.104 is in Table 3 in
Appendix 1.
---------------------------------------------------------------------------
\152\ IT staff will be required to modify integrator information
systems to compile information from past settlements to calculate
the information required to be disclosed to growers.
---------------------------------------------------------------------------
AMS expects the Sec. 201.104 disclosure documents will require an
additional 2,640 hours divided evenly among management, administrative,
and information technology staff to produce, distribute, and maintain
the disclosure documents each year on an ongoing basis for an aggregate
annual cost of $193,000. A more detailed explanation of the ongoing
costs associated with Sec. 201.104 is in Table 4 in Appendix 1.
AMS expects the aggregate cost of producing the Sec. 201.104 pre-
flock placement and settlement disclosure documents to consist of
$236,000, in the first year to review the regulation and to set up the
systems and controls, plus $193,000 in costs the first year and
annually thereafter to compile, distribute, and maintain the placement
and settlement disclosure documents. Thus, the aggregate first-year
total costs to live poultry dealers of Sec. 201.104 are expected to be
$429,000 and then $193,000 annually on an ongoing basis.
Section Sec. 201.104(b) concerns disclosures of inputs placed with
broiler growers in tournament settlement systems. Live poultry dealers
will be required to disclose information about inputs, such as feed,
medication, chicks, etc. for each flock placed with a grower. AMS
expects that, the first time a grower receives the disclosure, he or
she will require about 10 minutes to review each of the disclosure's
documents. At $60.70 per hour, the first disclosure document will cost
growers $134,000.\153\ After reviewing the documents the first time,
AMS expects that growers will need only 5 minutes to review successive
disclosures. Because growers average 4.5 flocks per year, AMS expects
that reviewing the disclosure documents concerning inputs will cost in
the aggregate an additional $234,000 \154\ for the remaining 3.5 flocks
in the first year and $301,000 \155\ for the 4.5 flocks in each
successive year.
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\153\ 1/6 hours x $60.70 per hour x 16,524 broiler growers x 80
percent of broilers raised in tournament systems = $133,731.
\154\ 1/12 hours x $60.70 per hour x 16,524 broiler growers x
3.5 additional flocks in the first year x 80 percent of broilers
raised in tournament systems = $234,029.
\155\ 1/12 hours x $60.70 per hour x 16,524 broiler growers x
4.5 flocks per year x 80 percent of broilers raised in tournament
systems = $300,894 per year.
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Section 201.104(c) concerns disclosures about the group of growers
in settlement groups in tournament settlement systems. Live poultry
dealers are required to disclose information about growers in each
tournament for each flock settled in tournament system. AMS expects
that the cost to growers associated with Sec. 201.104(c) will be
identical to the costs of reviewing the disclosures required in Sec.
201.104(b). Aggregate costs would be $134,000 \156\ for the disclosures
reviewed. AMS expects that reviewing the disclosure documents will cost
an additional $234,000 \157\ for the remaining 3.5 flocks in the first
year and $301,000 \158\ for the 4.5 flocks in each successive year.
---------------------------------------------------------------------------
\156\ 1/6 hours x $60.70 per hour x 16,524 broiler growers x 80
percent of broilers raised in tournament systems = $133,731.
\157\ 1/12 hours x $60.70 per hour x 16,524 broiler growers x
3.5 additional flocks in the first year x 80 percent of broilers
raised in tournament systems = $234,029.
\158\ 1/12 hours x $60.70 per hour x 16,524 broiler growers x
4.5 flocks per year x 80 percent of broilers raised in tournament
systems = $300,894 per year.
---------------------------------------------------------------------------
AMS estimates growers' aggregate costs for reviewing disclosures
associated with Sec. 201.104 to be $736,000 in the first year and
$602,000 in each subsequent year. AMS expects that broiler growers will
spend the most time on their first review of the placement and
settlement disclosures in order to understand the information, with
less time for each subsequent review.
The ten-year aggregate total costs of Sec. 201.104 to live poultry
dealers are estimated to be $2.2 million and the present value of the
ten-year total costs to be $1.9 million discounted at a 3 percent rate
and $1.6 million at a 7 percent rate. The annualized costs of the PV of
ten-year costs to live poultry dealers discounted at a 3 percent rate
are expected to be $219,000 and $224,000 discounted at a 7 percent
rate.
[[Page 83276]]
The ten-year aggregated total costs of Sec. 201.104 to broiler
growers are estimated to be $6.2 million and the present value of the
ten-year total costs to be $5.3 million discounted at a 3 percent rate
and $4.4 million at a 7 percent rate. The annualized costs of the PV of
ten-year costs to broiler growers discounted at a 3 percent rate are
expected to be $617,000 and $620,000 discounted at a 7 percent rate.
The costs from Sec. 201.104 are higher for broiler growers than
for live poultry dealers. There are two reasons for this. First, the
rule only affects 42 live poultry dealers while it affects 16,524
broiler growers. Secondly, the primary costs to the live poultry
dealers are the development of the placement and settlement
disclosures, while the ongoing costs to distribute and maintain them
are relatively small. Each broiler grower would receive and review both
a placement and settlement disclosure for each flock placed and then
settled in each tournament. Thus, there are many broiler growers who
would receive and review the placement and settlement disclosures with
each flock every year, which explains the higher cost relative to live
poultry dealers. The relative higher cost to the broiler growers would
be more than offset by the benefits of the extra information they can
use to make financial business decisions. The benefits will be
discussed in a later section.
The ten-year aggregate total costs of Sec. 201.104 to live poultry
dealers and broiler growers are estimated to be $8.3 million and the
present value of the ten-year total costs to be $7.1 million discounted
at a 3 percent rate and $5.9 million at a 7 percent rate. The
annualized aggregate costs of the PV of ten-year costs to live poultry
dealers and broiler growers discounted at a 3 percent rate are expected
to be $836,000 and $844,000 discounted at a 7 percent rate.
Combined Costs of Sec. Sec. 201.102 and 201.104
Combined costs to live poultry dealers for Sec. Sec. 201.102 and
201.104 are expected to be $1.4 million in the first year, and $512,000
in subsequent years. These combined costs are also reported above the
Paperwork Reduction Act section as the combined costs to live poultry
dealers for compliance with the reporting and recordkeeping
requirements of Sec. Sec. 201.102 and 201.104. The combined costs for
broiler growers are expected to be $1.9 million in the first year,
$854,000 in years two through five, and $795,000 after year five on an
ongoing basis.
The ten-year aggregate combined costs of Sec. Sec. 201.102 and
201.104 to live poultry dealers are estimated to be $6.0 million and
the present value of the ten-year total costs to be $5.3 million
discounted at a 3 percent rate and $4.5 million at a 7 percent rate.
The annualized aggregate combined costs of the PV of ten-year costs to
live poultry dealers discounted at a 3 percent rate are expected to be
$617,000 and $635,000 discounted at a 7 percent rate.
The ten-year aggregate combined costs of Sec. Sec. 201.102 and
201.104 to broiler growers are estimated to be $9.3 million and the
present value of the ten-year total costs to be $8.1 million discounted
at a 3 percent rate and $6.8 million at a 7 percent rate. The
annualized aggregate combined costs of the PV of ten-year costs to
broiler growers discounted at a 3 percent rate are expected to be
$948,000 and $971,000 discounted at a 7 percent rate. The costs to
broiler growers from Sec. Sec. 201.102 and 201.104 are higher for
broiler growers than live poultry dealers for the reasons discussed
above.
The ten-year aggregate combined costs of Sec. Sec. 201.102 and
201.104 to live poultry dealers and broiler growers are estimated to be
$15.4 million and the present value of the ten-year aggregate combined
costs to be $13.3 million discounted at a 3 percent rate and $11.3
million at a 7 percent rate. The annualized aggregate costs of the PV
of ten-year costs to live poultry dealers and broiler growers
discounted at a 3 percent rate are expected to be $1.6 million and $1.6
million discounted at a 7 percent rate.
Benefits of Sec. Sec. 201.102 and 201.104
As discussed above, AMS will estimate the industry benefits from
Sec. Sec. 201.102 and 201.104 in two parts, one quantifiable and the
other non-quantifiable. For the quantifiable part, AMS will provide a
minimum value of the combined benefit to broiler growers from the
additional information in the disclosures required under Sec. Sec.
201.102 and 201.104 and will refer to this minimum benefit as
Gmin. AMS first estimates Gmin and discusses the
non-quantifiable benefits of the final rules immediately below and
after the discussion of the benefit estimates.
Poultry growers are expected to benefit from the information in two
ways. First, growers will benefit as live poultry dealers lose some
potential market power. Second, the Disclosure Documents will provide
growers more information on their anticipated revenue variability than
they currently have, which will assist in supporting future income
projections. This additional information can give growers greater
economic and financial certainty. While the economic literature does
not address the relationship between asymmetric information and market
power in the relationship among broiler growers and live poultry
dealers, or in any directly analogous relationships, firms with
information that other market participants do not have can command
considerable monopoly and monopsony power.\159\ As an example of the
monopsony power of information, imperfect information in the market
about an employee's training level limits the wages that a trained
worker can obtain in the outside market, and it gives monopsony power
to the employer that supported the training.\160\ This concept extends
to the grower-live poultry dealer relationship, substituting for
training the marketing and production information about the contract
grower that one live poultry dealer possesses but which is not
available to other live poultry dealers, thus lowering the open market
value of the grower's services. Further, in this example the grower has
limited information on returns to other growers in their market due to
the live poultry dealer's ability to shield this information. Thus, it
is more difficult for the grower to make business decisions such as
choosing whether to deal with the current live poultry dealer or sign a
contract with another live poultry dealer, should one be available in
the region.
---------------------------------------------------------------------------
\159\ Allen, B. 1990. ``Information as an Economic Commodity,''
American Economic Review, Vol. 80:2, pages 268-273.
\160\ Acemoglu, D. and J Piskchke. 1998. ``Why do Firms Train?
Theory and Evidence,'' Quarterly Journal of Economics Vol 113(1):79-
119.
---------------------------------------------------------------------------
In an example of large grain traders that have oligopsony and
oligopoly market power, one analysis finds that large grain traders
manipulate prices and market information.\161\ The analysis contends
that these major firms move prices to their benefit by taking advantage
of information they alone possess, e.g., information on foreign
subsidiaries, contract positions, the price-reporting system, export
data, and commodity exchanges. Likewise, live poultry dealers have
information they alone possess and can use to their advantage.
---------------------------------------------------------------------------
\161\ See Perloff, J., and G. Rausser. 1983. ``The Effect of
Asymmetrically Held Information and Market Power in Agricultural
Markets'', American Journal of Agricultural Economics Vol 65(2):
366-372.
---------------------------------------------------------------------------
In a third example specific to broiler contracting, but with
information exchange not being explicitly addressed, live poultry
dealers will have monopsony-oligopsony power in a
[[Page 83277]]
given geographical area to the extent that growers have limited
opportunity to contract with other live poultry dealers. Grower capital
investments (poultry housing and specialized equipment) have little use
outside of raising broilers. Being aware of the possibility that they
may be held-up by live poultry dealers, growers will sub-optimally
invest in specific assets.\162\ Implicitly then, knowledge of the
possibility that they will be held-up will affect the growers' capital
investment decisions.
---------------------------------------------------------------------------
\162\ Vukina, Tom, and Porametr Leegomonchai. ``Oligopsony
Power, Asset Specificity, and Hold-Up: Evidence from the Broiler
Industry.'' American Journal of Agricultural Economics 88 (2006).
---------------------------------------------------------------------------
If the market were less oligopsonistic, with live poultry dealers
facing more competition between themselves for growers, individual live
poultry dealers would have to make a case for why growers should grow
for them rather than for competing live poultry dealers. In the extreme
case of perfect competition, all price and other market information is
known by all participants. While the nature of the broiler market means
full competition and hence full market information cannot be achieved,
the Disclosure Document does include the grower turnover rates and
quintiles of average annual gross payment per square foot for the
calendar year for the complex. Absent the Disclosure Document from the
live poultry dealer, the typical grower is unlikely to have this market
information. With this information, the grower can make more informed
business decisions, including whether to move to another live poultry
dealer upon contract completion, thus lowering the current live poultry
dealer's market power, at least when alternative live poultry dealers
are available. The information on grower turnover rates from the
Disclosure Document should give the grower a better idea of their
probability of being held-up, thus better informing their capital
investment decisions. While lowering information asymmetry increases
benefits to growers, live poultry dealers will suffer losses by losing
market power.
AMS does not have the data necessary for estimating the economic
impacts of a loss of market power on the part of live poultry dealers
due to information transfer nor the benefits to growers. However,
according to basic economic principles, increasing competition--i.e.,
reducing the market power advantage of a buyer or seller--leads to
increases in economic efficiency in the market. Based on these
principles, we expect that a reduction in dealer market power would, if
it occurs, result in net economic benefits. AMS also expects the grower
to benefit simply from having more information on the potential
variability of returns, even if average returns do not change.
According to economic principles of expected utility, a risk averse
producer will benefit economically from a reduction in revenue
variability.\163\ Purely addressing information exchange, the live
poultry dealer is not losing the information it supplies the grower via
the Disclosure Document. The live poultry dealer's quantified costs are
associated with creating the Disclosure Document.
---------------------------------------------------------------------------
\163\ Garcia, P., B. Adam, and R. Hauser. 1994. The Use of Mean-
Variance for Commodity Futures and Options Hedging Decisions'',
Journal of Agricultural and Resource Economics, 19(1): 32-45.
---------------------------------------------------------------------------
The act of supplying past revenue information in the disclosures
may alter the statistical distribution of revenue the grower thinks
they will face (including statistics that describe the distribution,
such as mean and variance), mostly likely increasing expected mean
revenues. By simply having more market information (e.g., the revenue
quintiles from the Disclosure Document), presumably the grower will be
able to place a smaller variability on their projected revenue than
they would with less information. If they are risk averse, by the
principle of expected utility, they will receive an economic benefit
from being able to place a lower variability on his projected revenue.
AMS estimates Gmin as the combined benefits to growers of
Sec. Sec. 201.102 and 201.104 from the reduction in profit uncertainty
due to obtaining the revenue information from the Disclosure Document.
AMS expects the majority of the benefits of reduced profit uncertainty
will result from additional information in the financial disclosures
under Sec. 201.102 as these disclosures provide revenue projections at
different performance percentiles over different housing types. AMS
expects that the additional information received in placement and
settlement disclosures under Sec. 201.104 regarding the effects of
input variability on revenue variability will also result in reduced
profit uncertainty, though to a lesser extent than the financial
disclosures. AMS was not able to allocate the benefits between
Sec. Sec. 201.102 and 201.104 and presents just the total combined
minimum quantifiable benefits of both rules.
Given assumptions about the level of risk aversion of the producer,
the distribution of a contract grower's revenue, and the grower's
utility function,\164\ it is possible to calculate a grower's benefits
of decreased revenue uncertainty associated with greater transparency.
AMS relied on an empirical approach to estimate the minimum benefits,
defined as a Risk Premium (RP), to contract broiler growers of a range
of reductions in the variability of their net revenue.\165\
---------------------------------------------------------------------------
\164\ A utility function is an economic concept that measures an
individual's preferences over a set of goods and services.
\165\ AMS prepared a technical appendix (Appendix 2) that
provides an explanation of the empirical approach used to estimate
the Risk Premium and is included at the end of this document.
---------------------------------------------------------------------------
The following table presents the Gmin benefit estimates
based on RP estimates for the first year for several scenarios of
reduction in the variability of net revenue and two assumptions for a
risk aversion premium (RAP) and two assumptions for how risk aversion
changes with wealth. For the latter, constant absolute risk aversion
(CARA) assumes that the grower's risk aversion does not change as
wealth increases. Decreasing absolute risk aversion (DARA) assumes the
grower's risk aversion increases as wealth decreases. Another
possibility is that the grower's risk aversion is increasing with
wealth (IARA). While no evidence exists one way or another for how the
risk preference of broiler contract growers changes with wealth, the
agricultural economics literature generally assumes DARA over IARA.
[[Page 83278]]
Table 2--Minimum Quantifiable Benefits, Gmin, (Risk Premium) to Contract Growers of Reductions in Net Revenue
Variability
----------------------------------------------------------------------------------------------------------------
Reduction in coefficient of variation of net revenue \b\
Grower risk aversion (risk aversion premium) ---------------------------------------------------------------
1% 2% 5% 10%
----------------------------------------------------------------------------------------------------------------
One year value
----------------------------------------------------------------------------------------------------------------
Moderate (20%).................................. $1,350,000 $2,690,000 $6,610,000 $12,840,000
High (40%)...................................... 3,210,000 6,380,000 15,700,000 30,540,000
DARA, High/Moderate............................. 1,839,000 3,655,000 8,966,000 17,365,000
----------------------------------------------------------------------------------------------------------------
PV over 10 years discounted at 3%
----------------------------------------------------------------------------------------------------------------
Moderate (20%).................................. 11,515,774 22,946,246 56,384,641 109,527,804
High (40%)...................................... 27,381,951 54,422,694 133,924,185 260,512,395
----------------------------------------------------------------------------------------------------------------
PV over 10 years discounted at 7%
----------------------------------------------------------------------------------------------------------------
Moderate (20%).................................. 9,481,835 18,893,434 46,425,874 90,182,787
High (40%)...................................... 22,545,697 44,810,450 110,270,230 214,500,180
----------------------------------------------------------------------------------------------------------------
\a\ The risk aversion premium (RAP) varies between 0 and 100 percent of the potential lost revenue, with higher
values reflecting higher risk aversion. A value of 20 percent is considered a reasonable reflection of
moderate aversion to risk and 40 percent being reflection of high-risk aversion.
\b\ The coefficient of variation of net revenue is a standardized measure of variability, and is defined as the
standard deviation of net revenue divided by its mean.
The RAP varies between 0 and 100 percent of the potential lost
revenue, with higher values reflecting higher risk aversion. The RP
estimates assume that mean net returns are unchanged, i.e., this
exercise is solely valuing the reduction in grower revenue uncertainty.
AMS estimates benefits under two CARA scenarios, one where the growers
have moderate risk aversion, with one with a RAP of 20 percent and a
high RAP of 40 percent, using contract producer revenue data for 2020.
The parameters used for the DARA scenario are chosen such that the
grower has a RAP of 40 percent when wealth is zero, and a RAP of 20
percent at mean wealth.
As the above table shows, one-year benefits range from $1.4 million
with a 1 percent reduction in the variability of net revenue when
moderate risk aversion is assumed to $31 million with a 10 percent
reduction in the variability of net revenue when high risk aversion is
assumed. AMS assumes growers will receive the same benefit of reduced
variability of net revenue every year in which they contract.
Discounting these annual values over ten years leads to a range in
benefit estimates from $9.5 million to $261 million depending on the
combination of risk aversion assumption, reduction in variability in
net returns, and the discount rate.
With assumptions of moderate risk aversion and that the rule would
lead to a two percent reduction in the coefficient of variation in net
revenue, the benefit estimate is $19 million with a discount rate of
seven percent PV. The analysis summarized in Table 2 assumes that the
grower maximizes an absolute risk aversion (ARA) utility function,
whether CARA or DARA. The alternative to an ARA function is a relative
risk aversion function (RRA) (see Appendix 2 for a discussion of ARA
and RRA).
As discussed above, Sec. Sec. 201.102 and 201.104 have additional,
other non-quantified benefits to the industry, referred to as
BO. First, if broiler growers did not expect to receive at
least as much in benefits as it takes in time to review the
disclosures, they would not review them. Some of these benefits are
captured in the quantitative estimates of the value of reduction in
revenue uncertainty, but there are others benefits the growers would
likely expect from these disclosures. The other benefits would arise
from a reduction in risk of retaliation and the potential for fraud and
deception by live poultry dealers. The additional information to
growers may lead to a more optimal allocation of capital and labor
resources (such as increased capital investment through the reduction
in perceived hold-up risk, and more informed decisions on whether and
with whom to enter into a growing arrangement), leading to improved
efficiencies across the entire industry.
The combined minimum benefits for broiler growers, Gmin,
from reduced revenue uncertainty are expected to be $2.7 million in the
first year and on an ongoing basis.\166\ The ten-year total minimum
benefits of Sec. Sec. 201.102 and 201.104 to broiler growers are
estimated to be $26.9 million and the present value of the ten-year
total minimum benefits to be $22.9 million discounted at a 3 percent
rate and $18.9 million at a 7 percent rate. The annualized PV of ten-
year minimum benefits to broiler growers discounted at 3 and 7 percent
rates are expected to be $2.7 million. The total benefits to the
industry, BT, from Sec. Sec. 201.102 and 201.104 would be
the sum of the minimum benefits to all growers, Gmin, and
the other non-quantified benefits to the industry from growers' risk
reductions and a more efficient allocation of labor and capital,
BO. The values appear in Table 3 in the next section. AMS
expects the total benefits to the industry from the rule--as is the
case for total costs, noted above--will be very small in relation to
the total value of industry production.
---------------------------------------------------------------------------
\166\ All benefits estimates assume a moderate (20 percent) RAP
and a 2 percent reduction in coefficient of variation of net
revenue.
---------------------------------------------------------------------------
Chicken sales in the U.S. for 2019 were approximately $58.6
billion. Total quantified cost of Sec. Sec. 201.102 and 201.104 is
estimated to be greatest in the first year at $3.4 million, or 0.0006
percent of revenues. A relatively small improvement in efficiency from
improved allocation of capital and labor resources in the industry
would more than outweigh the cost of this rule.
[[Page 83279]]
Total Quantified Combined Costs and Benefits of Sec. Sec. 201.102 and
201.104
The cost and benefit estimates of Sec. Sec. 201.102 and 201.104
presented above appear in the following table.
Table 3--Quantifiable Costs and Benefits \167\ of Sec. Sec. 201.102 and 201.104
----------------------------------------------------------------------------------------------------------------
Cost Benefits
-------------------------------------------------------------------------------
Preferred alternative Individual
Live poultry Broiler Industry total grower (Gmin) Total industry
dealers growers \a\ (BT)
----------------------------------------------------------------------------------------------------------------
Sec. 201.102:
First-Year.................. $1,008,000 $1,180,000 $2,188,000 Gmin Gmin + BO
Ten-Year Total.............. 3,881,000 3,158,000 7,039,000 Gmin Gmin + BO
PV of Ten-Year Discounted at 3,392,000 2,822,000 6,214,000 Gmin Gmin + BO
3 Percent..................
PV of Ten-Year Discounted at 2,886,000 2,468,000 5,354,000 Gmin Gmin + BO
7 Percent..................
PV of Ten-Year Annualized at 398,000 331,000 728,000 Gmin Gmin + BO
3 Percent..................
PV of Ten-Year Annualized at 411,000 351,000 762,000 Gmin Gmin + BO
7 Percent..................
Sec. 201.104:
First-Year.................. 429,000 736,000 1,164,000 Gmin Gmin + BO
Ten-Year Total.............. 2,162,000 6,152,000 8,314,000 Gmin Gmin + BO
PV of Ten-Year Discounted at 1,872,000 5,263,000 7,135,000 Gmin Gmin + BO
3 Percent..................
PV of Ten-Year Discounted at 1,573,000 4,352,000 5,925,000 Gmin Gmin + BO
7 Percent..................
PV of Ten-Year Annualized at 219,000 617,000 836,000 Gmin Gmin + BO
3 Percent..................
PV of Ten-Year Annualized at 224,000 620,000 844,000 Gmin Gmin + BO
7 Percent..................
Sec. Sec. 201.102 and
201.104:
First-Year.................. 1,437,000 1,916,000 3,353,000 2,690,000 Gmin + BO
Ten-Year Total.............. 6,043,000 9,310,100 15,353,000 26,900,000 Gmin + BO
PV of Ten-Year Discounted at 5,264,000 8,085,000 13,349,000 22,946,000 Gmin + BO
3 Percent..................
PV of Ten-Year Discounted at 4,459,000 6,820,000 11,279,000 18,893,000 Gmin + BO
7 Percent..................
PV of Ten-Year Annualized at 617,000 948,000 1,565,000 2,690,000 Gmin + BO
3 Percent..................
PV of Ten-Year Annualized at 635,000 971,000 1,606,000 2,690,000 Gmin + BO
7 Percent..................
----------------------------------------------------------------------------------------------------------------
\a\ AMS estimates Gmin as the combined benefits to growers of Sec. Sec. 201.102 and 201.104.
\b\ Estimates do not include unquantified costs of risk increases.
The quantified costs and minimum quantifiable benefits to the
industry in the first year are $3.4 million and $2.7 million,
respectively. The quantified costs exceed the minimum quantifiable
benefits in the first year only. The minimum quantifiable benefits
exceed the quantified costs in the ten-year total, the PVs on the ten
totals, the annualized PV of ten-year totals. This is a function of
quantified costs being higher at the beginning of the program and
falling off over time while the quantified benefits remain constant
over the entire estimation period.
---------------------------------------------------------------------------
\167\ Ibid.
---------------------------------------------------------------------------
AMS expects that the net benefits to the industry from Sec. Sec.
201.102 and 201.104 will be very small in relation to the total value
of industry production. Thus, AMS expects the impacts of the net
benefits on total industry supply to be immeasurably small, leading to
immeasurably small indirect effects on industry supply and demand,
including price and quantity effects.
Costs and Benefits of the Small Business Exemption Alternative
AMS estimated costs and benefits for an alternative to the
preferred option for the rule. It would be the same as Sec. Sec.
201.102 and 201.104, with the exception that the alternative would
exempt live poultry dealers that process less than 2 million pounds of
broilers per week from all provisions of the two final rules. In the
preferred alternative, small businesses would be exempt from the
disclosure requirements in Sec. 201.102(a)(1) only. The rest of the
provisions of Sec. Sec. 201.102 and 201.104 would still apply.
The costs associated with this alternative are similar, but smaller
than the preferred option. According to annual reports that live
poultry dealers file with AMS,\168\ small live poultry dealers
processing broilers make up 35.7 percent of all live poultry dealers
but have only 2 percent of broiler growing contracts. The estimation of
the costs and benefits of the small business exemption alternative will
follow the same format as the preferred alternative.
---------------------------------------------------------------------------
\168\ All live poultry dealers are required to annually file PSD
form 3002 ``Annual Report of Live Poultry Dealers,'' OMB control
number 0581-0308. The annual report form is available to public on
the internet at https://www.ams.usda.gov/sites/default/files/media/PSP3002.pdf.
---------------------------------------------------------------------------
Costs of Sec. 201.102--Small Business Exemption Alternative
AMS estimates the one-time costs for live poultry dealers of
setting up the Disclosure Document for the small business exemption
alternative would require 2,914 management hours, 972 attorney hours,
722 administrative hours, and 884 information technology hours costing
$486,000 in the first year for live poultry dealers to set up the
Disclosure Document.\169\ A more detailed explanation of the one-time
first-year costs associated with the alternative Sec. 201.102 is in
Table 1 in Appendix 3.
---------------------------------------------------------------------------
\169\ As discussed previously, the one-time set-up costs are not
equal to the first-year costs of Sec. 201.102 because the first-
year costs include the one-time set-up costs and the ongoing costs
that would be incurred in the first year as contracts are renewed,
revised, or originated.
---------------------------------------------------------------------------
AMS expects the ongoing costs for live poultry dealers for the
small business exemption alternative of updating and distributing the
Disclosure Document to broiler growers renewing or revising existing
contracts, new growers entering into contracts, existing growers
required to make additional capital investments to require 1,617
management hours, 176 legal hours, 726
[[Page 83280]]
administrative hours, and 733 information technology hours to produce,
distribute to growers, and maintain the Disclosure Document annually
for an annual cost of $258,000. A more detailed explanation of the
ongoing costs associated with the alternative Sec. 201.102 is in Table
2 in Appendix 3.
AMS expects the total cost of producing the disclosure information
to be $486,000 in the first year to set up the systems and controls,
plus $258,000 in costs the first year and annually thereafter to
compile and distribute the disclosure data and documents. Thus, the
first-year total costs of Sec. 201.102 for live poultry dealers are
expected to be $743,000 for the small business exemption alternative
and then $258,000 annually on an ongoing basis.
For alternative Sec. 201.102(a)(1), AMS expects that broiler
growers would take about 1 hour to review the documents each time
documents are disclosed to them in the first year. The alternative
would exempt live poultry dealers processing fewer than an average of 2
million pounds of broilers weekly from the reporting requirements, but
large live poultry dealers would be required to provide disclosures to
broiler growers for each of 19,417 \170\ contracts that come up for
renewal in the first year. AMS expects that 74.71 percent of the
contracts will require renewal in the first year. This includes all
flock-to-flock contracts, one-year contracts, and the portion of the
longer-term contracts that will expire in the first year. At a wage of
$60.70, AMS expects the requirements associated with Sec. 201.102
(a)(1) will cost broiler growers about $881,000 \171\ in the first year
in the aggregate. After the first year, as broiler growers get familiar
with the disclosures, AMS expects growers to spend less time reviewing
the documents. AMS expects broiler growers to take about five minutes
reviewing each Disclosure Document for an aggregate cost of $73,000
\172\ per year.
---------------------------------------------------------------------------
\170\ Live poultry dealers processing an average of more than
2,000,000 pounds of broilers per week, reported a combined 19,417
broiler contracts in their fiscal year 2021 annual reports to AMS.
All live poultry dealers are required to annually file PSD form 3002
``Annual Report of Live Poultry Dealers,'' OMB control number 0581-
0308. The annual report form is available to public on the internet
at https://www.ams.usda.gov/sites/default/files/media/PSP3002.pdf.
\171\ 1 hour to review each disclosure x $60.70 per hour x
19,417 contracts x 74.71 percent of the contracts renewed in the
first year = $880,541.
\172\ 1/12 hour to review each disclosure x $60.70 per hour x
19,417 contracts x 74.71 percent of the contracts renewed in the
first year = $73,386.
---------------------------------------------------------------------------
For the remaining contracts that will not be renewed in the first
year, AMS expects that 5 percent of the contracts will be renewed in
each of the next 5 years for a yearly cost of $59,000.\173\
---------------------------------------------------------------------------
\173\ 1 hour to review each disclosure x $60.70 per hour x
19,417 contracts x 5 percent of the contracts renewed per year =
$58,929 per year.
---------------------------------------------------------------------------
Paragraphs 201.102(a)(2) and (3) would only apply to broiler
growers that are new entrants with original capital investments and to
growers making significant upgrades with additional capital investments
to broiler houses. AMS expects that each of these groups of broiler
growers will account for 5 percent of the 19,417 broiler growing
contracts live poultry dealers reported in their annual reports \174\
to AMS. If growers require one hour at $60.70 per hour, growers'
aggregate costs would be $59,000 \175\ for reviewing documents required
in Sec. 201.102 (a)(2) and an additional $59,000 \176\ for reviewing
documents required in Sec. 201.102 (a)(3) in the first year and in
each successive year.
---------------------------------------------------------------------------
\174\ All live poultry dealers are required to annually file PSD
form 3002 ``Annual Report of Live Poultry Dealers,'' OMB control
number 0581-0308. The annual report form is available to public on
the internet at https://www.ams.usda.gov/sites/default/files/media/PSP3002.pdf.
\175\ 1 hour to review each disclosure x $60.70 per hour x
19,417 contracts x 5 percent of growers that are new entrants =
$58,929.
\176\ 1 hour to review each disclosure x $60.70 per hour x
19,417 contracts x 5 percent of growers that require significant
housing upgrades = $58,929.
---------------------------------------------------------------------------
AMS estimates broiler growers' aggregate costs for reviewing the
Disclosure Document associated with Sec. 201.102 for the small
business exemption alternative to be $1.2 million in the initial year,
$250,000 through year five, and then $191,000 in each succeeding year.
The ten-year aggregate total costs for the live poultry dealers of
Sec. 201.102 for the small business exemption alternative are
estimated to be $3.1 million. The present value of the ten-year
aggregate total costs of Sec. 201.102 to live poultry dealers are
estimated to be $2.7 million discounted at a 3 percent rate and $2.3
million at a 7 percent rate. The annualized aggregate costs of the PV
of ten-year costs to live poultry dealers discounted at a 3 percent
rate are expected to be $313,000 and $322,000 discounted at a 7 percent
rate.
The ten-year aggregate total costs to broiler growers of Sec.
201.102 for the small business exemption alternative are estimated to
be $3.1 million. The present value of the ten-year total costs of Sec.
201.102 to broiler growers are estimated to be $2.8 million discounted
at a 3 percent rate and $2.4 million at a 7 percent rate. The
annualized aggregate costs of the PV of ten-year costs to broiler
growers discounted at a 3 percent rate are expected to be $328,000 and
$349,000 discounted at a 7 percent rate.
The first-year aggregate total costs to broiler growers and live
poultry dealers of Sec. 201.102 for the small business exemption
alternative are estimated to be $1.9 million and the ten-year aggregate
total costs of Sec. 201.102 for the small business exemption
alternative for live poultry dealers and broiler growers are estimated
to be $6.2 million. The present value of the ten-year aggregate total
costs of Sec. 201.102 to live poultry dealers and broiler growers are
estimated to be $5.5 million discounted at a 3 percent rate and $4.7
million at a 7 percent rate. The annualized costs of the PV of ten-year
aggregate costs to live poultry dealers and broiler growers discounted
at a 3 percent rate are expected to be $641,000 and $671,000 discounted
at a 7 percent rate.
Costs of Sec. 201.104--Small Business Exemption Alternative
AMS estimates that the aggregate one-time costs of developing the
placement and settlement disclosure documents for live poultry dealers
under the small business exemption alternative would require 405
management hours, 297 administrative hours, and 1,134 information
technology hours costing $152,000 in the first year to initially set up
the placement and settlement disclosure documents. A more detailed
explanation of the one-time first-year costs associated with the
alternative Sec. 201.104 is in Table 3 in Appendix 3.
AMS expects the disclosure documents to require an additional 1,697
hours divided evenly among management, administrative, and information
technology staff to produce, distribute, and maintain the disclosure
documents each year on an ongoing basis for an annual cost of $124,000.
Thus, the aggregate first-year costs are estimated to be $276,000,
including the one-time set up costs and the costs of producing and
distributing the placement and settlement disclosures. A more detailed
explanation of the ongoing costs associated with the alternative Sec.
201.104 is in Table 4 in Appendix 3.
For the alternative Sec. 201.104(b), live poultry dealers would be
required to disclose information about inputs, such as stocking
density, breed and breeder flock information for each flock placed with
a grower. AMS expects that, the first time a broiler grower receives
the disclosure, he or she would require about 10 minutes to review each
of the disclosure's documents. At $60.70 per hour, the first disclosure
document would cost growers $86,000 in the
[[Page 83281]]
aggregate.\177\ After the reviewing the documents the first time, AMS
expects that broiler growers would only need 5 minutes to review
successive disclosures. Since growers average 4.5 flocks per year, AMS
expects that reviewing the disclosure documents concerning inputs would
cost an additional $150,000 \178\ for the remaining 3.5 flocks in the
first year and $193,000 \179\ for the 4.5 flocks in each successive
year.
---------------------------------------------------------------------------
\177\ 1/6 hours x $60.70 per hour x 16,524 broiler growers x 80
percent of broilers raised in tournament systems x 64.3 percent of
live poultry dealers that process more than 2,000,000 head per week
= $85,970.
\178\ 1/12 hours x $60.70 per hour x 16,524 broiler growers x
3.5 additional flocks in the first-year x 80 percent of broilers
raised in tournament systems x 64.3 percent of live poultry dealers
that process more than 2,000,000 head per week = $150,447.
\179\ 1/12 hours x $60.70 per hour x 16,524 broiler growers x
4.5 flocks per year x 80 percent of broilers raised in tournament
systems x 64.3 percent of live poultry dealers that process more
than 2,000,000 head per week = $193,432 per year.
---------------------------------------------------------------------------
Alternative Sec. 201.104(c) concerns disclosures about the group
of broiler growers in settlement groups in broiler tournament
settlement systems. Live poultry dealers would be required to disclose
information about the housing specifications for each grower grouped or
ranked during the specified period and the distribution of inputs to
each grower in each tournament for each flock settled in tournament
system. AMS expects that the cost to broiler growers associated with
Sec. 201.104(c) will be identical to the costs of reviewing the
disclosures required in Sec. 201.104(b). Aggregate costs would be
$86,000.\180\ for the disclosures reviewed. AMS expects that reviewing
the disclosure documents would cost, in the aggregate, an additional
$150,000 \181\ for the remaining 3.5 flocks in the first year and
$193,000 \182\ for the 4.5 flocks in each successive year.
---------------------------------------------------------------------------
\180\ 1/6 hours x $60.70 per hour x 16,524 broiler growers x 80
percent of broilers raised in tournament systems x 64.3 percent of
live poultry dealers that process more than 2,000,000 head per week
= $85,970.
\181\ 1/12 hours x $60.70 per hour x 16,524 broiler growers x
3.5 additional flocks in the first-year x 80 percent of broilers
raised in tournament systems x 64.3 percent of live poultry dealers
that process more than 2,000,000 head per week = $150,447.
\182\ 1/12 hours x $60.70 per hour x 16,524 broiler growers x
4.5 flocks per year x 80 percent of broilers raised in tournament
systems x 64.3 percent of live poultry dealers that process more
than 2,000,000 head per week = $193,432 per year.
---------------------------------------------------------------------------
AMS estimates growers' aggregate costs for reviewing the placement
and settlement disclosures associated with Sec. 201.104 under the
small business exemption alternative to be $473,000 in the first year
and $387,000 in each subsequent year. As discussed previously, AMS
expects that broiler growers would spend the most time on their first
review of the placement and settlement disclosures in order to
understand the information, with less time for each subsequent review.
The ten-year aggregate total costs to live poultry dealers of Sec.
201.104 under the small business exemption alternative are estimated to
be $1.4 million. The present value of the aggregate ten-year total
costs of Sec. 201.104 to live poultry dealers are estimated to be $1.2
million discounted at a 3 percent rate and $1.0 million at a 7 percent
rate. The annualized costs of the PV of aggregate ten-year costs to
live poultry dealers discounted at a 3 percent rate are expected to be
$141,000 and $144,000 discounted at a 7 percent rate.
The ten-year aggregate total costs to broiler growers of Sec.
201.104 for the small business exemption alternative are estimated to
be $4.0 million. The present value of the aggregate ten-year total
costs of Sec. 201.104 to broiler growers are estimated to be $3.4
million discounted at a 3 percent rate and $2.8 million at a 7 percent
rate. The annualized aggregate costs of the PV of ten-year costs to
broiler growers discounted at a 3 percent rate are expected to be
$397,000, and $398,000 discounted at a 7 percent rate.
The first-year aggregate total costs to live poultry dealers and
broiler growers of Sec. 201.104 under the small business exemption
alternative are estimated to be $749,000 and the ten-year aggregate
total costs are estimated to be $5.3 million. The present value of the
ten-year aggregate total costs of Sec. 201.104 to live poultry dealers
and broiler growers are estimated to be $4.6 million discounted at a 3
percent rate and $3.8 million at a 7 percent rate. The aggregate
annualized costs of the PV of ten-year costs to live poultry dealers
and broiler growers discounted at a 3 percent rate are expected to be
$538,000 and $542,000 discounted at a 7 percent rate.
Combined Costs of Sec. Sec. 201.102 and 201.104--Small Business
Exemption Alternative
Aggregate combined costs to live poultry dealers for Sec. Sec.
201.102 and 201.104 for the small business exemption alternative are
expected to be $1.0 million in the first year, and $381,000 in
subsequent years. The combined costs for broiler growers are expected
to be $1.6 million in the first year, $637,000 in years two through
five, and $578,000 after year five on an ongoing basis.
The aggregate ten-year combined quantified costs to live poultry
dealers of Sec. Sec. 201.102 and 201.104 for the small business
exemption alternative are estimated to be $4.5 million and the present
value of the ten-year combined costs are $3.9 million discounted at a 3
percent rate and $3.3 million at a 7 percent rate. The aggregate
annualized costs of the PV of ten-year costs to live poultry dealers
discounted at a 3 percent rate are expected to be $454,000 and $466,000
discounted at a 7 percent rate.
The aggregate ten-year combined costs to broiler growers of
Sec. Sec. 201.102 and 201.104 for the small business exemption
alternative are estimated to be $7.1 million and the present value of
the ten-year combined costs are estimated to be $6.2 million discounted
at a 3 percent rate and $5.2 million at a 7 percent rate. The aggregate
annualized costs of the PV of ten-year costs to broiler growers
discounted at a 3 percent rate are expected to be $725,000 and $747,000
discounted at a 7 percent rate. As under the preferred alternative, the
costs to broiler growers from Sec. Sec. 201.102 and 201.104 under the
small business exemption alternative would be higher for broiler
growers than live poultry dealers for the reasons discussed above.
The aggregate combined costs to live poultry dealers and broiler
growers of Sec. Sec. 201.102 and 201.104 under the small business
exemption alternative are estimated to be $2.7 million in the first
year, $1.0 million in years two through five, and $960,000 in years six
and beyond. The aggregate ten-year combined costs of Sec. Sec. 201.102
and 201.104 for the small business exemption alternative for live
poultry dealers and broiler growers are estimated to be $11.5 million
and the present value of the ten-year combined costs are estimated to
be $10.1 million discounted at a 3 percent rate and $8.5 million at a 7
percent rate. The aggregate annualized costs of the PV of ten-year
costs to live poultry dealers and broiler growers discounted at a 3
percent rate are expected to be $1.2 million and $1.2 million
discounted at a 7 percent rate. Additionally, there may be costs of
bearing increased risk that AMS has not estimated of increasing
transparency in broiler grower contracting and tournaments, which would
have different effects on more or less diversified live poultry
dealers.
Combined Benefits of Sec. Sec. 201.102 and 201.104--Small Business
Exemption Alternative
According to PSD records, only 2 percent of broiler growing
contracts are between small live poultry dealers and broiler growers.
Thus, 98 percent of all broiler growers will receive the benefits
[[Page 83282]]
of Sec. Sec. 201.102 and 201.104 under the small business exemption
alternative. To estimate the minimum quantified benefits to broiler
growers, Gmin, under the small business exemption
alternative, AMS multiplied the minimum quantified benefits under the
preferred alternative in Table 3 by 98 percent.
AMS estimates the aggregate minimum benefits to growers,
Gmin, from Sec. Sec. 201.102 and 201.104 under the small
business exemption alternative from reduced profit uncertainty to be
$2.6 million in the first year and on an ongoing basis.\183\ The ten-
year total minimum benefits of Sec. Sec. 201.102 and 201.104 to
broiler growers are estimated to be $26.4 million and the present value
of the ten-year total minimum benefits to be $22.5 million discounted
at a 3 percent rate and $18.5 million at a 7 percent rate. The
annualized PV of ten-year minimum benefits to broiler growers
discounted at 3 and 7 percent rates are expected to be $2.6 million.
The total benefits to the industry, BT, from Sec. Sec.
201.102 and 201.104, under the small business exemption alternative,
would be the sum of the minimum benefits to all broiler growers,
Gmin, and the other benefits to the industry from extra
information and a more efficient allocation of labor and capital,
BO. The values of the estimated benefits appear in Table 4
in the next section. AMS expects the quantified minimum benefits to
growers from Sec. Sec. 201.102 and 201.104, combined with the other
non-quantified benefits to growers, to exceed the costs of Sec. Sec.
201.102 and 201.104 under the small business exemption alternative.
Combined Costs and Benefits of Sec. Sec. 201.102 and 201.104
The aggregate cost and benefit estimates of Sec. Sec. 201.102 and
201.104 under the small business exemption alternative presented above
appear in the following table. The quantified costs and minimum
quantifiable benefits to the industry in the first year under the small
business exemption alternative are $2.7 million and $2.6 million,
respectively. The minimum quantifiable benefits exceed the quantified
costs on a ten-year and ten-year annualized basis.
As with the preferred option, AMS expects that the net benefits to
the industry from Sec. Sec. 201.102 and 201.104 under the small
business exemption alternative will be very small in relation to the
total value of industry production. Thus, AMS expects the impacts of
the net benefits on total industry supply under the small business
exemption alternative to be immeasurably small, leading to immeasurably
small indirect effects on industry supply and demand, including price
and quantity effects.
Table 4--Quantifiable Costs and Benefits of Sec. Sec. 201.102 and 201.104--Small Business Exemption
----------------------------------------------------------------------------------------------------------------
Cost Benefits
-------------------------------------------------------------------------------
Small business exemption Individual
alternative Live poultry Broiler rowers Industry total grower (Gmin) Total industry
dealers \a\ (BT)
----------------------------------------------------------------------------------------------------------------
Sec. 201.102:
First-Year.................. $743,000 $1,175,000 $1,918,000 Gmin Gmin + BO
Ten-Year Total.............. 3,062,000 3,132,000 6,194,000 Gmin Gmin + BO
PV of Ten-Year Discounted at 2,669,000 2,799,000 5,469,000 Gmin Gmin + BO
3 Percent..................
PV of Ten-Year Discounted at 2,264,000 2,449,000 4,713,000 Gmin Gmin + BO
7 Percent..................
PV of Ten-Year Annualized at 313,000 328,000 641,000 Gmin Gmin + BO
3 Percent..................
PV of Ten-Year Annualized at 322,000 349,000 671,000 Gmin Gmin + BO
7 Percent..................
Sec. 201.104:
First-Year.................. 276,000 473,000 749,000 Gmin Gmin + BO
Ten-Year Total.............. 1,390,000 3,955,000 5,345,000 Gmin Gmin + BO
PV of Ten-Year Discounted at 1,204,000 3,383,000 4,587,000 Gmin Gmin + BO
3 Percent..................
PV of Ten-Year Discounted at 1,011,000 2,798,000 3,809,000 Gmin Gmin + BO
7 Percent..................
PV of Ten-Year Annualized at 141,000 397,000 538,000 Gmin Gmin + BO
3 Percent..................
PV of Ten-Year Annualized at 144,000 398,000 542,000 Gmin Gmin + BO
7 Percent..................
Sec. Sec. 201.102 and ..............
201.104:
First-Year.................. 1,019,000 1,648,000 2,667,000 2,637,000 Gmin + BO
Ten-Year Total.............. 4,452,000 7,087,000 11,539,000 26,369,000 Gmin + BO
PV of Ten-Year Discounted at 3,873,000 6,183,000 10,056,000 22,493,000 Gmin + BO
3 Percent..................
PV of Ten-Year Discounted at 3,275,000 5,247,000 8,522,000 18,520,000 Gmin + BO
7 Percent..................
PV of Ten-Year Annualized at 454,000 725,000 1,179,000 2,637,000 Gmin + BO
3 Percent..................
PV of Ten-Year Annualized at 466,000 747,000 1,213,000 2,637,000 Gmin + BO
7 Percent..................
----------------------------------------------------------------------------------------------------------------
\a\ AMS estimates Gmin as the combined benefits to growers of Sec. Sec. 201.102 and 201.104.
\b\ Estimates do not include unquantified cost of risk increases.
AMS considered the small business exemption alternative in part
because of concerns that, due to scale economies, smaller live poultry
dealers would not be able to absorb the cost of the required
information disclosures as well as the large live poultry dealers. If
the costs are disproportionately large for smaller live poultry
dealers, large dealers might have an advantage possibly driving further
consolidation chicken production. AMS subject matter experts do not
expect that the costs of the rule will result in any additional
consolidation by large live poultry dealers acquiring small live
poultry dealers. The reasons are a lack of additional economies of
scale from a large firm acquiring a small firm and the increase in
costs to the large firm from no longer having the exemptions to small
live poultry dealers offered in the preferred alternative.
---------------------------------------------------------------------------
\183\ All benefits estimates assume a moderate (20 percent) RAP
and a 2 percent reduction in coefficient of variation of net
revenue.
---------------------------------------------------------------------------
AMS also had to consider the rights of the growers who contracted
with the smaller live poultry dealers. Those growers would be denied
the benefits of the rule under the small business exemption. Also, AMS
estimates that costs associated with the required information
disclosures will be small relative to the size of the industry. Given
these considerations, AMS chose final Sec. Sec. 201.102 and 201.104,
which exempts small live poultry dealers from some, not all, of the
disclosures required
[[Page 83283]]
of the large firms over the alternative rule that would exempt all live
poultry dealers producing less than 2 million pounds of chicken per
week.
C. Regulatory Flexibility Analysis
AMS is adding Sec. Sec. 201.102 and 201.104 to the regulations
under the Act. Section 201.102 will require live poultry dealers that
deal in broilers to make disclosures before entering into new contracts
or renewing existing contracts. Section 201.104 will require live
poultry dealers that deal in broilers to disclose information at the
settlement of each flock. Sections 201.102 and 201.104 will not apply
to live poultry dealers that deal in turkeys, ducks, geese, or other
fowl if the live poultry dealer does not deal in broilers.
The provisions in Sec. 201.102 will require large live poultry
dealers to disclose a true written copy of the growing agreement and a
new Disclosure Document any time a live poultry dealer seeks to renew,
revise, or replace an existing poultry growing arrangement that does
not contemplate modifications to the existing housing specifications.
Small live poultry dealers that process less than 2 million pounds of
poultry per week will be excluded from this disclosure requirement.
Before a live poultry dealer enters a poultry growing arrangement that
would require an original capital investment or requires modifications
to existing housing, both large and small live poultry dealers must
provide a copy of the growing agreement, the housing specifications, a
letter of intent, and the new Disclosure Document.
The Disclosure Document will require live poultry dealers to
disclose summaries of litigation with any broiler grower, bankruptcy
filings, and the live poultry dealer's policy regarding a grower's sale
of the farm or assignment of the contract.
Live poultry dealers will be required to disclose growers' variable
costs if it collects the information. Live poultry dealers will be
required to audit the information to ensure accuracy and obtain and
file signed receipts certifying that the live poultry dealer provided
the required Disclosure Document. Live poultry dealers will be required
to describe policies and procedures, as well as any appeal rights
arising from increased lay-out time; sick, diseased, and high early
mortality flocks; other events potentially resulting in massive
depopulation of flocks, affecting grower payments; feed outages
including outage times; and grower complaints relating to feed quality,
formulation, or suitability. Live poultry dealers will be required to
disclose annual grower turnover rates as well.
The Disclosure Document will require two separate financial
disclosures to growers. The first disclosure will be a table indicating
average annual gross payments to broiler growers for the previous
calendar year. The table will be organized by housing specification at
each complex located in the United States that is owned or operated by
the live poultry dealer and should express average payments on the
basis of U.S. dollars per farm facility square foot. The second
disclosure will be a set of tables with the average annual gross
payments per farm facility square foot in each quintile to broiler
growers for each of the five previous years, organized by housing
specification at each complex.
Live poultry dealers will also be required to make reasonable
efforts to assist growers in translating the Disclosure Document. The
rule will also prevent live poultry dealers from restricting growers or
potential growers from sharing the Disclosure Document with a
translator. Disclosures required in Sec. 201.104 are associated with
poultry grower ranking systems. At the time of placement, Sec. 201.104
requires live poultry dealers to provide specific information
concerning the inputs, including feed, chicks, medication, etc., that
the live poultry dealer provided to the grower. At the time of
settlement, it will require the live poultry to provide specific
information about inputs provided to every other grower in the
tournament or ranking pool within 24 hours of flock delivery. Similar
information on inputs will also be disclosed at settlement.
AMS expects the disclosure requirements in Sec. Sec. 201.102 and
201.104 will mitigate effects associated with asymmetric information
between broiler growers and live poultry dealers. Some of the
information held by live poultry dealers will be valuable to growers
because it influences grower compensation in tournament contracts and
might help growers in negotiating contract terms and making decisions
about capital investments.
The contracts themselves are often incomplete and exhibit asymmetry
in the information available to live poultry dealers and contract
growers. Because live poultry dealers supply most of the inputs, much
of the production information is available only to the grower from the
live poultry dealer. For example, the contract grower may not know
precisely how much feed it used, or how much weight the flock gained
under his or her care, unless the live poultry dealer provides the
information.
The proposed rule would have amended Sec. 201.100 and added new
Sec. 201.214 to the regulations under the Act. The final rule will
leave the current Sec. 201.100 unchanged, and it will add two new
regulations, Sec. Sec. 201.102 and 201.204.
The proposed rule would have required live poultry dealers to
provide growers with copies of the disclosure document and a true
written copy of the contract 7 calendar days prior to executing the
contract. The final rule changes the 7-day requirement to a 14-day
requirement, but the broiler grower has the option to waive 7 calendar
days of that time period.
The proposed rule also would have required live poultry dealers to
obtain the broiler grower's or prospective broiler grower's dated
signature as evidence of receipt of the Disclosure Document. The final
rule will require live poultry dealers to obtain the broiler grower's
or prospective broiler grower's dated signature as evidence of receipt
but will also permit a live poultry dealer to obtain alternative
documentation to evidence delivery and that best efforts were used to
obtain grower receipt. The proof of delivery and best-efforts
requirement, as an alternative, provide reasonable assurance in
circumstances where the grower refuses to sign or where the grower has
made him or herself unavailable that the grower receives and is able to
evaluate in a timely manner the Disclosure Document. The grower receipt
requirement, and this alternative, are comparable in cost and achieve
the goal of this rule to minimize the risk that live poultry dealer
deliver the Disclosure Document through means that, in practice, are
not be read or noticed by the grower under the time frames provided,
and so obstruct the purposes of ensuring the grower can evaluate the
information before the grower makes significant decisions.
In response to comments to the proposed rule, AMS changed the final
rule to make it applicable only to live poultry dealers that deal in
broilers. The rule will not apply to live poultry dealers that deal
with turkeys, ducks, geese, or other fowl unless the live poultry
dealer also deals in broilers. For live poultry dealers that deal in
broilers as well as turkeys or other fowl, the final rule only applies
to the broiler operations.
In response to comments, AMS also added provisions to Sec. 201.102
that will require live poultry dealers to assist growers with
understanding the Disclosure Documents for broiler growers that do not
speak English as a primary language. AMS also added
[[Page 83284]]
provisions requiring live poultry dealers to describe policies and
procedures, as well as any appeal rights arising increased lay-out
time; sick, diseased, and high early mortality flocks; other events
potentially resulting in massive depopulation of flocks, affecting
grower payments; feed outages including outage times; and grower
complaints relating to feed quality, formulation, or suitability.
Applying the rule to fewer firms considerably reduces the aggregate
cost to small businesses. The proposed rule would have applied to 54
small live poultry dealers. The final rule will apply to 20 live
poultry dealers that are small businesses. This is mostly due to
removing live poultry dealers that handle turkeys. There were very few
live poultry dealers active in the markets for ducks, geese, and other
fowl. Also, the smallest of the small live poultry dealers do not deal
in broilers, and while they would have been required to comply with the
proposed rule, the final rule will not apply to them.
AMS also added disclosure requirements to the final rule that were
not required in the proposed rule, and those disclosures will increase
costs to the small businesses that will be required to comply with the
final rule.
The Small Business Administration (SBA) defines small businesses by
their North American Industry Classification System Codes (NAICS). SBA
considers broiler producers, NAICS 112320, small if sales are less than
$3.5 million per year. Live poultry dealers, NAICS 311615, are
considered small businesses if they have fewer than 1,250
employees.\184\
---------------------------------------------------------------------------
\184\ U.S. Small Business Administration. Table of Small
Business Size Standards Matched to North American Industry
Classification System Codes. Effective December 19, 2022.
---------------------------------------------------------------------------
AMS maintains data on live poultry dealers from the annual reports
these firms file with PSD. Data from the annual reports indicate that
42 live poultry dealers would have been subject to the regulation in
their fiscal year 2021. Twenty of the live poultry dealers would be
small businesses according to the SBA standard. In their fiscal year
2021, live poultry dealers reported that they had 19,808 broiler
production contracts with broiler growers. Small live poultry dealers
accounted for 950 contracts.
Annual reports from live poultry dealers indicate they had 19,808
contracts, but a broiler grower can have more than one contract. The
2017 Census of Agriculture indicated that there were 16,524 poultry
growers in the United States.\185\ AMS has no record of the number of
broiler growers that qualify as small businesses but expects that
nearly all of them are small businesses.
---------------------------------------------------------------------------
\185\ USDA, NASS. 2017 Census of Agriculture: United States
Summary and State Data. Volume 1, Part 51. Issued April 2019. p. 56.
https://www.nass.usda.gov/Publications/AgCensus/2017/Full_Report/Volume_1,_Chapter_1_US/usv1.pdf.
---------------------------------------------------------------------------
Costs of Sec. Sec. 201.102 and 201.104 to live poultry dealers
will primarily consist of the time required to gather the information
and distribute it among the growers. Sections 201.102 and 201.104 will
also cost broiler growers the value of the time they put into reviewing
and acknowledging receipt of the disclosures.
Expected costs are estimated as the total value of the time
required to produce and distribute the disclosures that will be
required by Sec. Sec. 201.102 and 201.104 as well as the time to
create and maintain any necessary additional records, although live
poultry dealers already keep nearly all of the required records.
Estimates of the amount of time required to create and distribute the
disclosure documents were provided by AMS subject matter experts. These
experts were auditors and supervisors with many years of experience in
auditing live poultry dealers for compliance with the Act. Estimates
for the value of the time are DOL BLS OEWS estimated released May
2022.\186\ AMS marked up the wages 41.82 percent to account for
benefits.
---------------------------------------------------------------------------
\186\ See U.S. Bureau of Labor Statistics, May 2021 National
Occupational Employment and Wage Estimates, May 2022. https://www.bls.gov/oes/special.requests/oesm21all.zip. Viewed January 31,
2023.
---------------------------------------------------------------------------
AMS expects Sec. 201.102 will initially require 1,589 hours of
management time at $84.27 per hour costing $134,000, 720 hours of
attorney time at $131.38 per hour costing $95,000, 487 hours of
administrative time at $41.71 per hour costing $20,000, and 396 hours
of information technology staff hours at $92.91 per hour costing
$37,000 to keep and maintain records and produce and distribute the
disclosures. AMS expects Sec. 201.102 will annually require an
additional 578 hours of management time at $84.27 per hour costing
$49,000, 116 hours of attorney time at $131.38 per hour costing
$15,000, 254 hours of administrative time at $41.71 per hour costing
$11,000, and 148 hours of information technology staff hours at $92.91
per hour costing $14,000. Total aggregate first-year one-time set up
costs to small live poultry dealers for Sec. 201.102 are expected to
be $286,000. AMS expects aggregate cost to small live poultry dealers
to be $88,000 annually, for a first-year total cost of $374,000.
AMS estimated Sec. 201.104 will require a one-time first year
aggregate investment of 300 hours of management time at $84.27 per hour
costing $25,000, 220 hours of administrative time at $41.71 per hour
costing $9,000, and 840 hours of information technology staff time at
$92.91 per hour costing $78,000. Total aggregate first-year setup costs
are expected to be $112,000.
AMS expects Sec. 201.104 will annually require an aggregate
additional 1,257 hours distributed evenly across management,
administrative, and information technology staff at $84.27, $41.71, and
$92.91 per hour, respectively, costing $35,000, $17,000, and $39,000
respectively to keep and maintain records and produce and distribute
the disclosures. Total aggregate first-year costs to small live poultry
dealers for Sec. 201.104 are expected to be $204,000. After the first
year, aggregate costs are expected to be $92,000 annually.
The rule will regulate live poultry dealers' contracts. AMS expects
that costs per live poultry dealer would be correlated with number of
contracts. All expected costs of Sec. 201.102 are associated with
maintaining records and producing and distributing Disclosure Documents
among contract growers. AMS expects that firms that contract with few
growers will have lower costs. Larger live poultry dealers will tend to
have more contracts and will likely have more costs. Section 201.104
only concerns poultry ranking systems. Smaller live poultry dealers
that do not have tournament contracts will not have any of the costs
associated with Sec. 201.104, and some live poultry dealers have few
contracts with broiler growers and raise broiler in their own
facilities. Those dealers will have relatively lower costs.
AMS does not regulate poultry growers, and the rule has no
requirements of poultry growers. To benefit from the disclosures,
growers will need to review the information provided. Growers are not
required to review the disclosure information in Sec. Sec. 201.102 and
201.104, and growers that do not expect a benefit from reviewing the
disclosure information likely will not review it.
AMS estimates aggregate growers' costs for reviewing disclosures
associated with Sec. Sec. 201.102 and 201.104 combined to be $93,000
in the initial year. After broiler growers become familiar with the
disclosures, they will likely require less time to review the
documents, and AMS expects annual aggregate costs to growers will be
$41,000 for years two through five and $38,000 each year thereafter.
This
[[Page 83285]]
amounts to $117 per grower in the first year. The table below
summarizes costs of Sec. Sec. 201.102 and 201.104 to small live
poultry dealers and small broiler growers.
Table 5--Estimated Costs to Small Businesses of Sec. Sec. 201.102 and 201.104
----------------------------------------------------------------------------------------------------------------
Regulated live
Type of cost poultry dealers Unregulated Total (dollars)
(dollars) growers (dollars)
----------------------------------------------------------------------------------------------------------------
Sec. 201.102:
First-year Cost.................................... 374,000 58,000 432,000
First-year Cost per Firm........................... 19,000 73 NA
PV of Ten-year Cost Discounted at 3 Percent........ 1,031,000 137,000 1,168,000
PV of Ten-year Cost Discounted at 7 Percent........ 888,000 120,000 1,008,000
Ten-year Cost Annualized at 3 Percent.............. 121,000 16,000 137,000
Ten-year Cost Annualized at 7 Percent.............. 126,000 17,000 143,000
Average Ten-Year Cost per Firm Annualized at 3 6,100 20 NA
Percent...........................................
Average Ten-Year Cost per Firm Annualized at 7 6,300 22 NA
Percent...........................................
Sec. 201.104:
First-year Cost.................................... 204,000 35,000 239,000
First-year Cost per Firm........................... 10,000 45 NA
PV of Ten-year Cost Discounted at 3 Percent........ 891,000 252,000 1,144,000
PV of Ten-year Cost Discounted at 7 Percent........ 749,000 209,000 958,000
Ten-year Cost Annualized at 3 Percent.............. 105,000 30,000 134,000
Ten-year Cost Annualized at 7 Percent.............. 107,000 30,000 136,000
Average Ten-Year Cost per Firm Annualized at 3 5,300 37 NA
Percent...........................................
Average Ten-Year Cost per Firm Annualized at 7 5,400 37 NA
Percent...........................................
Sec. Sec. 201.102 and 201.104:
First-year Cost.................................... 578,000 93,000 671,000
First-year Cost per Firm........................... 29,000 117 NA
PV of Ten-year Cost Discounted at 3 Percent........ 1,923,000 389,000 2,312,000
PV of Ten-year Cost Discounted at 7 Percent........ 1,637,000 329,000 1,965,000
Ten-year Cost Annualized at 3 Percent.............. 225,000 46,000 271,000
Ten-year Cost Annualized at 7 Percent.............. 233,000 47,000 280,000
Average Ten-Year Cost per Firm Annualized at 3 11,300 58 NA
Percent...........................................
Average Ten-Year Cost per Firm Annualized at 7 11,700 59 NA
Percent...........................................
----------------------------------------------------------------------------------------------------------------
Live poultry dealers report net sales in annual reports to AMS.
Table 6 below groups small live poultry dealers' net sales into
quartiles, reports the average net sales in each quartile, and compares
average net sales to average expected first-year costs per firm for
each of Sec. 201.102 and Sec. 201.104 and total first-year costs.
Estimated first-year costs are higher than 10-year annualized costs,
and for the threshold analysis, first-year costs will be higher than
annualized costs as percentage of net sales. Correspondingly, the ratio
of ten-year annualized costs to net sales is lower than their
corresponding first-year cost ratios listed in Table 6. If estimated
costs meet the threshold in the first year, they will in the following
years as well.
Estimated first-year costs per firm are small. The ratio is less
than 0.1 percent of average net sales in the three largest quartiles.
Percentage of net sales are about 0.26 percent in the smallest
quartile.
Table 6--Comparison of Small Live Poultry Dealers' Net Sales to Expected Annualized Costs of Sec. Sec.
201.102 and 201.104
----------------------------------------------------------------------------------------------------------------
First year costs First year costs
related to Sec. related to Sec. Total first year
Quartile Average net sales 201.102 as a 201.104 as a costs as a
(dollars) percent of net percent of net percent of net
sales (percent) sales (percent) sales (percent)
----------------------------------------------------------------------------------------------------------------
0 to 25 percent..................... 11,173,037 0.260 0.101 0.105
25 to 50 percent.................... 30,021,116 0.097 0.038 0.039
50 to 75 percent.................... 73,471,776 0.039 0.015 0.016
75 to 100 percent................... 193,207,736 0.015 0.006 0.006
----------------------------------------------------------------------------------------------------------------
AMS also estimated costs of an alternative proposal that would
exempt most small live poultry dealers from the requirements of the
regulations. The alternative would exempt all live poultry dealers that
process less than 2 million pounds of poultry per week from all
reporting requirements. The alternative would only apply to five small
business under the SBA standard.
AMS estimated the alternative to Sec. 201.102 would require a one-
time first year aggregate investment of 488 hours of management time at
$84.27 per hour costing $41,000, 180 hours of attorney time at $131.38
per hour costing $24,000, 145 hours of administrative time at $41.71
per hour costing $6,000, and 163 hours of information technology staff
time at $92.91 per hour costing $15,000. Aggregate total first-
[[Page 83286]]
year setup costs are expected to be $86,000. AMS expects the
alternative proposal for Sec. 201.102 will annually require an
additional aggregate 198 hours of management time at $84.27 per hour
costing $17,000, 29 hours of attorney time at $131.38 per hour costing
$4,000, 92 hours of administrative time at $41.71 per hour costing
$4,000, and 64 hours of information technology staff hours at $92.91
per hour costing $6,000 to keep and maintain records and produce and
distribute the disclosures. Aggregate total first-year costs to small
live poultry dealers for Sec. 201.102 are expected to be $116,000.
After the first year AMS expects aggregate costs to small live poultry
dealers to be $30,000 annually.
AMS estimated alternative Sec. 201.104 will require a one-time
first year aggregate investment of 75 hours of management time at
$84.27 per hour costing $6,000, 55 hours of administrative time at
$41.71 per hour costing $2,000, and 210 hours of information technology
staff time at $92.91 per hour costing $20,000. Aggregate total first-
year setup costs are expected to be $28,000.
AMS expects alternative Sec. 201.104 will annually require an
additional aggregate 70 hours distributed evenly across management,
administrative, and information technology staff at $84.27, $41.71, and
$92.91 per hour, respectively, costing $2,000, $1,000, and $2,000
respectively to keep and maintain records and produce and distribute
the disclosures. Aggregate total first-year costs to small live poultry
dealers for alternative Sec. 201.104 are expected to be $33,000. After
the first year, costs are expected to be $5,000 annually.
The alternative would have a relatively small effect on costs to
broiler growers on a per grower basis, and growers will only review the
disclosures if they perceive that they are beneficial. AMS estimates
growers' aggregate costs for reviewing and acknowledging receipt of
disclosures associated with Sec. Sec. 201.102 and 201.104 to be
$55,000 in the initial year. AMS expects annual aggregate costs to
growers would be $24,000 for years two through five and $22,000 each
year thereafter. Table 7 below summarizes aggregate costs of
alternative Sec. Sec. 201.102 and 201.104 combined to small live
poultry dealers and small broiler growers.
Table 7--Estimated Costs to Small Businesses of Alternative Sec. Sec. 201.102 and 201.104
----------------------------------------------------------------------------------------------------------------
Regulated live
Type of cost poultry dealers Unregulated Total (dollars)
(dollars) growers (dollars)
----------------------------------------------------------------------------------------------------------------
Alternative Sec. 201.102:
First-year Cost.................................... 116,000 34,000 150,000
First Year-Cost Per Firm........................... 6,000 43 NA
PV of Ten-year Cost Discounted at 3 Percent........ 342,000 81,000 422,000
PV of Ten-year Cost Discounted at 7 Percent........ 293,000 71,000 364,000
Ten-year Cost Annualized at 3 Percent.............. 40,000 9,000 50,000
Ten-year Cost Annualized at 7 Percent.............. 42,000 10,000 52,000
Average Ten-Year Cost per Firm Annualized at 3 2,000 12 NA
Percent...........................................
Average Ten-Year Cost per Firm Annualized at 7 2,100 13 NA
Percent...........................................
Alternative Sec. 201.104:
First-year Cost.................................... 33,000 21,000 54,000
First Year-Cost Per Firm........................... 2,000 26 NA
PV of Ten-year Cost Discounted at 3 Percent........ 71,000 149,000 220,000
PV of Ten-year Cost Discounted at 7 Percent........ 62,000 123,000 185,000
Ten-year Cost Annualized at 3 Percent.............. 8,000 17,000 26,000
Ten-year Cost Annualized at 7 Percent.............. 9,000 17,000 26,000
Average Ten-Year Cost per Firm Annualized at 3 400 22 NA
Percent...........................................
Average Ten-Year Cost per Firm Annualized at 7 500 22 NA
Percent...........................................
Alternative Sec. Sec. 201.102 and 201.104:
First-year Cost.................................... 150,000 55,000 204,000
First Year-Cost Per Firm........................... 7,000 69 NA
PV of Ten-year Cost Discounted at 3 Percent........ 413,000 229,000 642,000
PV of Ten-year Cost Discounted at 7 Percent........ 355,000 193,000 549,000
Ten-year Cost Annualized at 3 Percent.............. 48,000 27,000 75,000
Ten-year Cost Annualized at 7 Percent.............. 51,000 28,000 78,000
Average Ten-Year Cost per Firm Annualized at 3 2,400 34 NA
Percent...........................................
Average Ten-Year Cost per Firm Annualized at 7 2,600 35 NA
Percent...........................................
----------------------------------------------------------------------------------------------------------------
Net sales for small live poultry dealers that will be required to
make disclosure under alternative Sec. Sec. 201.102 and 201.104
averaged $159 million for their fiscal year 2020. Expected first-year
cost per live poultry dealer will be well below 0.1 percent. Clearly,
exempting live poultry dealers that process less than 2 million pounds
of poultry per week will reduce cost to small live poultry dealers, but
the benefits of the rule will also be less. AMS prefers the final
Sec. Sec. 201.102 and 201.104 to the alternative because it considers
the information in the disclosures to be important for broiler growers
for making investment and production decisions and necessary for the
efficient functioning of the market.
AMS made considerations for small live poultry dealers in drafting
Sec. Sec. 201.102 and 201.104. Section 201.102 makes several
exemptions for live poultry dealers producing less than 2 million
pounds of poultry per week. AMS chose not to make the final rule
applicable to live poultry dealers that deal in turkeys, ducks, geese,
or other fowl, which were some of the smallest live poultry dealers.
Although costs would be smaller with the alternative, the costs
associated with Sec. Sec. 201.102 and 201.104 are relatively small.
The rule seeks only to require live poultry dealers to provide its
contract growers with information relevant to their operations, and AMS
made every effort to limit the disclosures to information that live
poultry dealer already possessed. First-year costs to regulated live
poultry dealers are expected to be $578,000,
[[Page 83287]]
which would be about $29,000 per firm. Present value of ten-year costs
annualized at 7 percent are expected to be $1.6 million, and ten-year
costs annualized at 7 percent are expected to be $233,000. These
amounts are small considering that small live poultry dealers averaged
nearly $60 million in sales annually. Although estimates of costs
relative net sales increase for the smallest live poultry dealers,
Sec. Sec. 201.102 and 201.104 only apply to tournament contracts. Some
of the smallest live poultry dealers do not use tournament contracts
and will not incur any costs. While Sec. Sec. 201.102 and 201.104
would have an effect on a substantial number (20) of small businesses,
the economic impact would not be significant.
Costs to growers will be limited to the time required to review the
disclosure and acknowledge receipt of the disclosures. AMS expects that
Sec. Sec. 201.102 and 201.104 will have effects on a substantial
number of growers however, the costs will not be significant for any of
them.
Based on the above analyses regarding Sec. Sec. 201.102 and
201.104, this rule is not expected to have a significant economic
impact on a substantial number of small business entities as defined in
the Regulatory Flexibility Act (5 U.S.C. 601 et seq.)
D. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
Chapter 35), AMS published a 60-day notice and requested comments on
the information collection and recordkeeping requirements of the
proposed rule when it proposed revisions to Sec. Sec. 201.100 and
201.214 in the Federal Register on June 8, 2022 (87 FR 34980).\187\ The
proposed information collection was for a total of 19,993 hours for the
first year, and 6,066 hours per year thereafter. In response to
comments, AMS revised the information collection requirements for the
final rule and recalculated the information collection burden estimates
accordingly, for a total of 17,205 hours for the first year, and 6,615
hours thereafter. The comment period was open for 60 days and was
extended for an additional 15 days. The comment period closed on August
23, 2022. Below is a summary of the final rule's information collection
requirements, the comments AMS received relating to the information
collection requirements of the proposed rule, and any changes AMS made
in response to the comments.
---------------------------------------------------------------------------
\187\ The new sections that AMS proposed in Sec. Sec. 201.100
and 201.214 are now Sec. Sec. 201.102 and 201.104 in the final
rule, respectively.
---------------------------------------------------------------------------
This final rule requires live poultry dealers engaged in the
production of broilers to provide certain disclosures to broiler
growers in advance of entering into production contracts. Under the
final rule, live poultry dealers engaged in the production of broilers
are required to make certain disclosures to poultry growers with whom
they contract. To assist with compliance, AMS is providing Form PSD
6100 (Live Poultry Dealer Disclosure Document Form Instructions), which
includes instructions for developing the Disclosure Document and
performing necessary calculations.
This final rule also requires live poultry dealers engaged in the
production of broilers who group and rank broiler growers for
settlement purposes to disclose essential information to broiler
growers about the flocks placed with individual growers at the time of
placement. Live poultry dealers are also required to disclose
information about the flocks and associated production inputs delivered
to all broiler growers in the settlement group, as well as each
grower's ranking within the group, at the time of settlement. Broiler
growers are not required to provide information but can use the
information provided by live poultry dealers to improve flock
management practices and evaluate grower treatment under broiler grower
ranking systems.
Summary information on the burdens of these new information
collection and recordkeeping requirements follows below. Additional
detail can be found in the Regulatory Impact Analysis (RIA).
AMS estimates each of 42 live poultry dealers engaged in the
production of broilers would develop an average of 472 Disclosure
Documents for broiler growers relating to new, renewed, revised, or
updated broiler growing arrangements, as required under Sec. 201.102.
AMS arrived at its estimate of 472 developed Disclosure Documents per
live poultry dealer from AMS records which show 42 live poultry dealers
engaged in the production of broilers filed annual reports with AMS,
and their reports indicate that they had 19,808 growing contracts with
broiler growers during their fiscal year 2021. AMS divided the 19,808
growing contracts by the 42 live poultry dealers to arrive at 472
Disclosure Documents per live poultry dealer.
Live poultry dealers with current contracts with broiler growers
would not be required to provide the Disclosure Document to those
growers unless the dealer is renewing, revising, or replacing an
existing contract or proposing modifications to the broiler housing
specifications under the existing contract. AMS estimates first year
development, production, and distribution of the Disclosure Documents
in Sec. 201.102, including management, legal, administrative, and
information technology time, would require an average 0.59 hours each,
while ongoing annual production and distribution of each Disclosure
Document would take 0.20 hours. AMS arrived at the estimates of the
number of hours per response to set up, produce, distribute, and
maintain each Disclosure Document by dividing the annual number of
hours to set up, produce, and distribute the disclosures (11,709 first
year hours and 3,975 ongoing hours) by the annual number of responses
for all live poultry dealers (19,808). AMS estimated the number of
hours for all live poultry dealers to develop, produce, distribute, and
maintain each Disclosure Document required under Sec. 201.102 from the
number of hours estimated and the expected cost estimates in Tables 1
and 2 in Appendix 1.
AMS estimates 42 live poultry dealers engaged in the production of
broilers would each provide placement and settlement records to an
average of 628 broiler growers annually under tournament ranking
systems, as required under Sec. 201.104. AMS estimated the annual
number of placement and settlement records by multiplying the number of
relevant slaughter plants in AMS records from the reports that live
poultry dealers file with AMS (188) by the average number of
tournaments at each plant per week from AMS subject matter experts
(1.35) by 52 weeks. This product is then multiplied by two to account
for both placement and settlement records. AMS then divided the
estimated annual number of responses (26,395) by the number of live
poultry dealers (42) engaged in the production of broilers to arrive at
its estimate of 628 placement and settlement disclosure records for
each live poultry dealer on an annual basis.
AMS estimates first year development, production, and distribution
of the required placement and settlement records, as required under
Sec. 201.104, including management, legal, administrative, and
information technology time, will require approximately 0.21 hours. AMS
estimates ongoing annual production and distribution of required
tournament placement and settlement information would require an
average of 0.10 hours. AMS arrived at the estimates of the number of
hours per response to set up,
[[Page 83288]]
produce, distribute, and maintain each disclosure document by dividing
the annual number of hours to set up, produce, and distribute the
disclosures (5,496 first year hours and 2,640 ongoing hours) by the
annual number of responses for live poultry dealers (26,395). AMS
estimated the number of hours for all live poultry dealers engaged in
the production of broilers to develop, produce, and distribute each
placement and settlement disclosure document required under Sec.
201.104 from the number of hours estimated and the expected cost
estimates in Tables 3 and 4 in Appendix 1.
Under Sec. 201.102, live poultry dealers are required to certify
as to the accuracy of the Disclosure Documents and are required to
maintain records relating to the Disclosure Documents for three years
following expiration of the broiler growing arrangement. Under Sec.
201.104, live poultry dealers are required to maintain records related
to broiler grower tournament placements and settlement for 5 years.
The required disclosures under Sec. 201.102 include essential
information about the contract, the live poultry dealer's business
history, and financial projections the grower could use to evaluate
entering into the contract. Under the rule, live poultry dealers are
required to provide the Disclosure Documents, which include specified
information and boilerplate grower notifications. AMS will make
available PSD Form 6100 that dealers can download from the AMS website
to assist with development of the required Disclosure Document. Live
poultry dealers are required to obtain grower signatures as evidence of
the grower's receipt of the Disclosure Document, or obtain alternative
documentation to evidence delivery and that best efforts were used to
obtain grower receipt. Live poultry dealers are also required to retain
the signature pages for three years following contract expiration.
Section 201.104 requires live poultry dealers engaged in the
production of broilers who group or rank broiler growers for settlement
purposes to disclose information about each flock of broiler placed
with growers for growout at the time of placement. Additionally, live
poultry dealers are required to provide to each broiler grower in the
group, at the time of settlement, information about the flocks placed
with every grower in the group, as well as each grower's performance
ranking within the group. Growers can use placement disclosures to
inform flock management decisions during growout, and can use
settlement disclosures to evaluate their growout performance,
potentially improve future performance, and evaluate whether group
members are treated fairly. Live poultry dealers are required to
maintain records related to these disclosures for 5 years following
settlement.
Costs of Final Sec. Sec. 201.102 and 201.104
The combined costs to live poultry dealers engaged in the
production of broilers for compliance with the reporting and
recordkeeping requirements of final Sec. Sec. 201.102 and 201.104 are
expected to be $1,437,096 in the first year, and $511,788 in subsequent
years. The total hours estimated for the live poultry dealers to
create, produce, distribute, and maintain these documents are 17,205 in
the first year, and 6,615 in subsequent years. Complete details showing
how AMS arrived at these cost estimates appear in Tables 1-4 in
Appendix 1.
Comments From the Proposed Rule and Changes to the Final Rule
After consideration of public comments, AMS determined to adopt the
proposed rule as a final rule with several modifications. This section
provides an overview of the comments and how the final rule differs
from the proposed rule.
The proposed rule would have required all live poultry dealers, and
not just those engaged in the production of broilers, to provide the
new disclosures required in revised Sec. 201.102 and new Sec.
201.104. Based on public comments and other information, AMS
subsequently decided to require the new disclosures only of live
poultry dealers involved in broiler production. Thus, the number of
entities affected by the final rule is substantially lower than
originally estimated. This change significantly reduced the
recordkeeping burden. This and other changes between the proposed and
final rule are discussed in more detail below.
Live poultry dealers commented that the full cost of the proposed
rule would likely be many times greater than predicted by AMS. The
commenters asserted AMS greatly underestimated the costs of creating
the recordkeeping systems needed to comply with the proposed rule.
In drafting and in estimating the costs of proposed Sec. Sec.
201.100 and 201.214, AMS consulted auditors and supervisors who are
familiar with live poultry dealers' records from many years of
experience in auditing live poultry dealers for compliance with the
Act. AMS expects that recordkeeping systems that most live poultry
dealers already have in place will enable them to gather much of the
information in the disclosures from records they already have available
to them and limit the necessity of developing new recordkeeping
systems. Thus, AMS made no changes to the information collection
requirements of the proposed rule based on this comment.
As mentioned above and will be explained in further detail below,
AMS did change the language of the proposed rule to limit its
application to broiler production. In order to make compliance with the
final rule as easy as possible for regulated entities to follow, AMS
reorganized the final rule by moving the new disclosures required into
revised Sec. 201.102 and new Sec. 201.104.
In the final rule, AMS removed the proposed revisions to Sec.
201.100 requiring all live poultry dealers to provide certain
additional disclosures to prospective or current growers and placed the
requirements in new Sec. 201.102. AMS also amended the proposed
requirements to apply exclusively to live poultry dealers engaged in
the production of broilers who use a broiler growing ranking system to
calculate grower payments, and moved the requirements from proposed new
Sec. 201.214 to new Sec. 201.104. This reorganization of the rule
does not impact the recordkeeping requirements or costs of the final
rule.
A commenter representing the turkey industry noted the proposed
rule was largely based on research into the broiler industry. The
commenter asserted it would be extremely difficult for turkey companies
to implement the rule due to differences between turkey and chicken
production. AMS analyzed a sample of turkey production contracts from
across the country and concluded that, although research suggests
broiler grower contract payments span a wide range, a similar disparity
is not readily apparent in turkey production. Based on the comment and
our further study, AMS has limited the applicability of final
Sec. Sec. 201.102 and 201.104 to live poultry dealers engaged in the
production of broilers. The final rule does not apply to live poultry
dealers engaged in the production of turkeys, ducks, geese, and other
domestic fowl. This change reduced the information collection burden
from 89 respondents made up of live poultry dealers engaged in the
production of broilers, turkeys, ducks, geese, and other domestic fowl
to 42 live poultry dealers engaged in the production of broilers.
Accordingly, this change reduced the information collection burden on
live poultry dealers between the proposed Sec. Sec. 201.100 and
201.214 and final Sec. Sec. 201.102 and 201.104.
[[Page 83289]]
AMS proposed to require live poultry dealers to make various
financial disclosures to broiler growers, including a table showing
``average annual gross payments'' made to growers at all complexes
owned or operated by the live poultry dealer for the previous calendar
year, as well as to growers at the local complex. Poultry and meat
trade associations suggested AMS require dealers to disclose average
annual gross payments only for the grower's local complex. These
commenters noted that complexes in different geographic areas face
different economic conditions, arguing that information about payments
at other complexes would not be useful and would potentially confuse
growers. Therefore, AMS removed the requirement proposed in Sec.
201.100(d)(1) to disclose payment information for all complexes owned
or operated by the dealer. AMS maintains the requirement proposed in
Sec. 201.100(d)(2) for live poultry dealers engaged in the production
of broilers to disclose payment information only relating to the
broiler grower's local complex at Sec. 201.102(d)(1) of the final
rule. Accordingly, this change reduced the information collection
burden on live poultry dealers between the proposed and final rule.
Both growers and live poultry dealers also requested in comments
that AMS provide more specificity on how to calculate average annual
gross payments. While the proposed rule provided detail on
calculations, the commenters felt the instructions lacked sufficient
specificity to assure that live poultry dealers could comply and that
broiler growers received adequate data on which to base business
decisions. Therefore, AMS developed more in-depth instructions on how
to calculate them, which are included in Form PSD 6100 (Live Poultry
Dealer Disclosure Document Form Instructions). AMS added a modest
amount of time to its cost estimates for live poultry dealers to review
the instructions.
Several commenters recommended that AMS also require the disclosure
of grower turnover data. Grower turnover rates relate to the general
risk of termination and non-renewal of contracts with a live poultry
dealer. This information would allow growers to compare the turnover
rates of multiple live poultry dealers as a risk factor when making
contracting decisions. Therefore, AMS added a provision at Sec.
201.102(c)(5) of the final rule requiring live poultry dealers engaged
in the production of broilers to disclose average annual broiler grower
turnover rates for the previous calendar year and the average of the 5
previous calendar years at both the company level and the local complex
level. AMS developed instructions for how to calculate average annual
broiler grower turnover rates, which are included in Form PSD 6100. AMS
added a modest amount of time to its cost estimates for live poultry
dealers to review the instructions and calculate grower turnover rates.
Numerous commenters from the grower and live poultry dealer sectors
expressed that these provisions should be in plain and unambiguous
language to avoid discrepancies in interpretation among the various
parties, regulators, and courts. Some commenters also indicated a need
to ensure growers who are not native speakers of English can understand
the disclosures. Therefore, AMS added a provision at Sec.
201.102(g)(3) of the final rule to require live poultry dealers engaged
in the production of broilers to present the information in the
Disclosure Document in a clear, concise, and understandable manner for
growers.
AMS also added a provision at Sec. 201.102(g)(4) to require that
the live poultry dealer must make reasonable efforts to ensure that
growers are aware of their right to request translation assistance, and
to assist the grower in translating the Disclosure Document at least 14
calendar days before the live poultry dealer executes the broiler
growing arrangement although the grower can waive 7 calendar days of
that time period. Reasonable efforts include but are not limited to
providing current contact information for professional translation
service providers, trade associations with translator resources,
relevant community groups, or any other person or organization that
provides translation services in the broiler grower's geographic area.
A live poultry dealer may not restrict a broiler grower or prospective
broiler grower from discussing or sharing the Disclosure Document for
purposes of translation with a person or organization that provides
language translation services. Nothing in the rule prevents companies
from providing a translation provided it is complete, accurate, and not
misleading. AMS added a modest amount of time to its cost estimates for
live poultry dealers to comply with these new requirements.
In the proposed rule, AMS did not specifically propose to require
live poultry dealers to disclose their policies on grower payments with
respect to increased lay-out time, diseased flocks, natural disasters
and other depopulation events, feed issues or outages, or policies on
grower appeal rights and processes. Multiple commenters suggested AMS
include these disclosures. In the final rule, AMS added a provision at
Sec. 201.102(c)(4) requiring live poultry dealers engaged in the
production of broilers to disclose policies and procedures on increased
lay-out time; sick, diseased, or high early mortality flocks; natural
disasters, weather events, or other events adversely affecting the
physical infrastructure of the local complex or the grower facility;
other events potentially resulting in massive depopulation of flocks,
affecting grower payments; feed outages including outage times; and
grower complaints relating to feed quality, formulation, or
suitability, as well as any appeal rights arising out of these events.
AMS added a modest amount of time to its cost estimates for live
poultry dealers to comply with this new requirement.
The proposed rule would have required live poultry dealers to
provide growers with copies of the disclosure document and a true
written copy of the contract 7 calendar days prior to executing the
contract. The final rule changes the 7-day requirement to a 14-day
requirement, but the broiler grower has the option to waive 7 calendar
days of that time period.
The proposed rule also would have required live poultry dealers to
obtain the broiler grower's or prospective broiler grower's dated
signature as evidence of receipt or obtain alternative documentation
acceptable to the Administrator as evidence of receipt. The final rule
will require live poultry dealers to obtain the broiler grower's or
prospective broiler grower's dated signature as evidence of receipt or
obtain alternative documentation to evidence delivery and that best
efforts were used to obtain grower receipt.
AMS proposed in Sec. 201.100(f)(1)(i) to require live poultry
dealers to establish, maintain, and enforce a governance framework
reasonably designed to audit the accuracy and completeness of the
disclosures in the Disclosure Document, which must include audits and
testing, as well as reviews of an appropriate sampling of Disclosure
Documents by the principal executive officer or officers. AMS
determined that the requirement in Sec. 201.102(f)(2) for the
principal executive officer or officers to certify the governance
framework and the accuracy of the Disclosure Document adequately covers
the intended requirement for officers of this level to be focused on
the effectiveness of the governance framework. AMS concluded that this
level of detail about the audit process for the Disclosure
[[Page 83290]]
Document was not necessary, particularly as AMS seeks to balance the
need to ensure reliability of these statements with the burden on the
principal executive officers regarding details of the governance
process. Therefore, AMS removed the requirement proposed in Sec.
201.100(f)(1)(i) for audit, testing, and reviews of an appropriate
sampling of Disclosure Documents by the principal executive officer or
officers.
E. E-Government Act
USDA is committed to complying with the E-Government Act by
promoting the use of the internet and other information technologies to
provide increased opportunities for citizen access to Government
information and services, and for other purposes.
F. Executive Order 12988--Civil Justice Reform
This final rule has been reviewed under Executive Order 12988--
Civil Justice Reform. This rule is not intended to have retroactive
effect. This rule does not preempt State or local laws, regulations, or
policies, unless they present an irreconcilable conflict with this
rule. There are no administrative procedures that must be exhausted
prior to any judicial challenge to the provisions of this rule. Nothing
in this final rule is intended to interfere with a person's right to
enforce liability against any person subject to the Act under authority
granted in section 308 of the Act.
G. Executive Order 13175--Consultation and Coordination With Tribal
Indian Governments
This rule has been reviewed in accordance with the requirements of
Executive Order 13175--Consultation and Coordination with Indian Tribal
Governments. Executive Order 13175 requires Federal agencies to consult
with Tribes on a government-to-government basis on policies that have
Tribal implications, including regulations, legislative comments or
proposed legislation, and other policy statements or actions that have
substantial direct effects on one or more Indian Tribes, on the
relationship between the Federal Government and Indian Tribes or the
distribution of power and responsibilities between the Federal
Government and Indian Tribes.
AMS has determined that this final rule does not have substantial
direct effects on one or more Tribes that would require consultation.
If a Tribe requests consultation, AMS will work with USDA's Office of
Tribal Relations to ensure meaningful consultation is provided where
changes, additions, and modifications identified herein are not
expressly mandated by Congress. AMS will also conduct outreach to
ensure that Tribes and Tribal members are aware of the requirements and
benefits under this final rule.
H. Civil Rights Impact Analysis
AMS has considered the potential civil rights implications of this
final rule on members of protected groups to ensure that no person or
group will be adversely or disproportionately at risk or discriminated
against on the basis of race, color, national origin, gender, religion,
age, disability, sexual orientation, marital or family status, or
protected genetic information. The rule does not create a program that
would recruit or require the opt-in participation of poultry producers,
growers, or live poultry dealers. This rule does not contain any
requirements related to eligibility, benefits, or services that will
have the purpose or effect of excluding, limiting, or otherwise
disadvantaging any individual, group, or class of persons on one or
more prohibited bases. In fact, the regulation will create means by
which AMS may be able to address potential civil rights issues in
violation of the Act.
In its review, AMS conducted a disparate impact analysis, using the
required calculations, which resulted in a finding that Asian
Americans, Pacific Islanders, and Native Hawaiians were
disproportionately impacted by the rule, insofar as fewer farmers in
those groups participate in poultry production than would be expected
by their representation among U.S. farmers in general and therefore are
less likely to benefit from the enhanced transparency provided by the
rule. The final regulations will nevertheless provide benefits to all
poultry growers. AMS will institute enhancement efforts to notify the
groups found to be disproportionately impacted of the regulations and
their implications. AMS outreach will specifically target several
organizations that regularly engage with or otherwise may represent the
interests of these impacted groups.
I. Congressional Review Act
Pursuant to Subtitle E of the Small Business Regulatory Enforcement
Fairness Act of 1996, also known as the Congressional Review Act (5
U.S.C. 801 et seq.), the Office of Information and Regulatory affairs
designated this final rule as not a major rule as defined by 5 U.S.C.
804(2).
List of Subjects in 9 CFR Part 201
Confidential business information, Reporting and recordkeeping
requirements, Stockyards, Surety bonds, Trade practices.
For the reasons set forth in the preamble, the Agricultural
Marketing Service amends 9 CFR part 201 as follows:
PART 201--ADMINISTERING THE PACKERS AND STOCKYARDS ACT
0
1. The authority citation for 9 CFR part 201 continues to read as
follows:
Authority: 7 U.S.C. 181-229c.
0
2. Section 201.2 is revised to read as follows:
Sec. 201.2 Terms defined.
The definitions of terms contained in the Act shall apply to such
terms when used in Administering the Packers and Stockyards Act, 9 CFR
part 201; Rules of Practice Governing Proceedings Under the Packers and
Stockyards Act, 9 CFR part 202; and Statements of General Policy Under
the Packers and Stockyards Act, 9 CFR part 203. In addition, the
following terms used in these parts shall be construed to mean:
Act means the Packers and Stockyards Act, 1921, as amended and
supplemented (7 U.S.C. 181 et seq.).
Additional capital investment means a combined amount of $12,500 or
more per structure paid by a poultry grower or swine production
contract grower over the life of the poultry growing arrangement or
swine production contract beyond the initial investment for facilities
used to grow, raise, and care for poultry or swine. Such term includes
the total cost of upgrades to the structure, upgrades of equipment
located in and around each structure, and goods and professional
services that are directly attributable to the additional capital
investment. The term does not include costs of maintenance or repair.
Administrator or agency head means the Administrator of the
Agricultural Marketing Service or any person authorized to act for the
Administrator.
Agency means the Agricultural Marketing Service of the United
States Department of Agriculture.
Breeder facility identifier means the identification that a live
poultry dealer permanently assigns to distinguish among breeder
facilities supplying eggs for the poultry placed at the poultry
grower's facility.
Breeder flock age means the age in weeks of the egg-laying flock
that is the source of poultry placed at the poultry grower's facility.
Broiler means any chicken raised for meat production.
[[Page 83291]]
Broiler grower means a poultry grower engaged in the production of
broilers.
Broiler growing arrangement means a poultry growing arrangement
pertaining to the production of broilers.
Commerce means commerce between any State, Territory, or
possession, or the District of Columbia, and any place outside thereof;
or between points within the same State, Territory, or possession, or
the District of Columbia, but through any place outside thereof; or
within any Territory or possession, or the District of Columbia.
Complex means a group of local facilities under the common
management of a live poultry dealer. A complex may include, but not be
limited to, one or more hatcheries, feed mills, slaughtering
facilities, or poultry processing facilities.
Custom feedlot means any facility which is used in its entirety or
in part for the purpose of feeding livestock for the accounts of
others, but does not include feeding incidental to the sale or
transportation of livestock.
Department means the United States Department of Agriculture.
Gross payments are the total compensation a poultry grower receives
from the live poultry dealer, including, but not limited to, base
payments, new housing allowances, energy allowances, square footage
payments, extended lay-out time payments, equipment allowances, bonus
payments, additional capital investment payments, poultry litter
payments, etc., before deductions or assignments are made.
Grower variable costs means those costs related to poultry
production that may be borne by the poultry grower, which may include,
but are not limited to, utilities, fuel, water, labor, repairs and
maintenance, and liability insurance.
Housing specifications means a description of--or a document
relating to--a list of equipment, products, systems, and other
technical poultry housing components required by a live poultry dealer
for the production of live poultry.
Inputs means the various contributions to be made by the live
poultry dealer and the poultry grower as agreed upon by both under a
poultry growing arrangement. Such inputs may include, but are not
limited to, animals, feed, veterinary services, medicines, labor,
utilities, and fuel.
Letter of intent means a document that expresses a preliminary
commitment from a live poultry dealer to engage in a business
relationship with a prospective poultry grower and that includes the
chief terms of the agreement.
Live poultry dealer means any person engaged in the business of
obtaining live poultry by purchase or under a poultry growing
arrangement for the purpose of either slaughtering it or selling it for
slaughter by another, if poultry is obtained by such person in
commerce, or if poultry obtained by such person is sold or shipped in
commerce, or if poultry products from poultry obtained by such person
are sold or shipped in commerce.
Live Poultry Dealer Disclosure Document means the complete set of
disclosures and statements that the live poultry dealer must provide to
the poultry grower.
Minimum number of placements means the least number of flocks of
poultry the live poultry dealer will deliver to the grower for growout
annually under the terms of the poultry growing arrangement.
Minimum stocking density means the ratio that reflects the minimum
weight of poultry per facility square foot the live poultry dealer
intends to harvest from the grower following each growout.
Number of placements means the number of flocks of poultry the live
poultry dealer will deliver to the grower for growout during each year
of the poultry growing arrangement period.
Original capital investment means the initial financial investment
for facilities used to grow, raise, and care for poultry or swine.
Packers and Stockyards Division (PSD) means the Packers and
Stockyards Division of the Fair Trade Practices Program (FTPP),
Agricultural Marketing Service.
Person means individuals, partnerships, corporations, and
associations.
Placement means delivery of a poultry flock to the poultry grower
for growout in accordance with the terms of a poultry growing
arrangement.
Poultry grower means any person engaged in the business of raising
and caring for live poultry for slaughter by another, whether the
poultry is owned by such person or by another, but not an employee of
the owner of such poultry.
Poultry grower ranking system means a system where the contract
between the live poultry dealer and the poultry grower provides for
payment to the poultry grower based upon a grouping, ranking, or
comparison of poultry growers delivering poultry during a specified
period.
Poultry growing arrangement means any growout contract, marketing
agreement, or other arrangement under which a poultry grower raises and
cares for live poultry for delivery, in accord with another's
instructions, for slaughter.
Poultry growout means the process of raising and caring for poultry
in anticipation of slaughter.
Poultry growout period means the period of time between placement
of poultry at a grower's facility and the harvest or delivery of such
animals for slaughter, during which the feeding and care of such
poultry are under the control of the grower.
Principal part of performance means the raising of and caring for
livestock or poultry, when used in connection with a livestock or
poultry production contract.
Prospective broiler grower means a person or entity with whom the
live poultry dealer is considering entering into a broiler growing
arrangement.
Prospective poultry grower means a person or entity with whom the
live poultry dealer is considering entering into a poultry growing
arrangement.
Regional director means the regional director of the Packers and
Stockyards Division (PSD) for a given region or any person authorized
to act for the regional director.
Registrant means any person registered pursuant to the provisions
of the Act and the regulations in this part.
Schedule means a tariff of rates and charges filed by stockyard
owners and market agencies.
Secretary means the Secretary of Agriculture of the United States,
or any officer or employee of the Department authorized to act for the
Secretary.
Stocking density means the ratio that reflects the number of birds
in a placement, expressed as the number of poultry per facility square
foot.
Stockyard means a livestock market which has received notice under
section 302(b) of the Act that it has been determined by the Secretary
to come within the definition of ``stockyard'' under section 302(a) of
the Act.
0
3. Amend Sec. 201.100 by revising paragraphs (a) and (b) to read as
follows:
Sec. 201.100 Records to be furnished poultry growers and sellers.
(a) Poultry growing arrangement; timing of disclosure. A live
poultry dealer who offers a poultry growing arrangement to a poultry
grower must provide the poultry grower with a true written copy of the
offered poultry growing arrangement on the date the dealer provides the
poultry grower with poultry housing specifications.
(b) Right to discuss the terms of poultry growing arrangement
offer. A live poultry dealer, notwithstanding any confidentiality
provision in the poultry
[[Page 83292]]
growing arrangement, may not prohibit a poultry grower or prospective
poultry grower from discussing the terms of a poultry growing
arrangement offer or, if applicable, the accompanying Live Poultry
Dealer Disclosure Document described in Sec. 201.102 (b) through (d)
of this part with any of the following:
(1) A Federal or State agency.
(2) The grower's financial advisor or lender.
(3) The grower's legal advisor.
(4) An accounting services representative hired by the grower.
(5) Other growers for the same live poultry dealer.
(6) A member of the grower's immediate family or a business
associate. A business associate is a person not employed by the grower,
but with whom the grower has a valid business reason for consulting
with when entering into or operating under a poultry growing
arrangement.
* * * * *
0
4. Add Sec. 201.102 to read as follows:
Sec. 201.102 Disclosures for broiler production.
(a) Obligation to furnish information and documents. In addition to
the requirements of Sec. 201.100 of this part, a live poultry dealer
engaged in the production of broilers must provide the documents
described in this section to the prospective or current broiler grower.
(1) Except as provided in paragraph (e) of this section, when a
live poultry dealer seeks to renew, revise, or replace an existing
broiler growing arrangement, or to establish a new broiler growing
arrangement that does not contemplate modifications to the existing
housing specifications, the live poultry dealer must provide the
following documents at least 14 calendar days before the live poultry
dealer executes the broiler growing arrangement (provided that the
grower may waive up to 7 calendar days of that time period):
(i) A true, written copy of the renewed, revised, replacement, or
new broiler growing arrangement.
(ii) The Live Poultry Dealer Disclosure Document, as described in
paragraphs (b), (c), and (d) of this section.
(2) When a live poultry dealer seeks to enter a broiler growing
arrangement with a broiler grower or prospective broiler grower that
will require an original capital investment, the live poultry dealer
must provide the following to the broiler grower or prospective broiler
grower simultaneously with the housing specifications:
(i) A copy of the broiler growing arrangement that is affiliated
with the current housing specifications.
(ii) The Live Poultry Dealer Disclosure Document, as described in
paragraphs (b), (c), and (d) of this section.
(iii) A letter of intent that can be relied upon to obtain
financing for the original capital investment.
(3) When a live poultry dealer seeks to offer or impose
modifications to existing housing specifications that could reasonably
require a broiler grower or prospective broiler grower to make an
additional capital investment, the live poultry dealer must provide the
following to the broiler grower or prospective broiler grower
simultaneously with the modified housing specifications:
(i) A copy of the broiler growing arrangement that is affiliated
with the modified housing specifications.
(ii) The Live Poultry Dealer Disclosure Document, as described in
paragraphs (b), (c), and (d) of this section.
(iii) A letter of intent that can be relied upon to obtain
financing for the additional capital investment.
(b) Prominent Disclosures. The Live Poultry Dealer Disclosure
Document must include a cover page followed by the disclosures as
required in paragraphs (c) and (d) of this section. The order, form,
and content of the cover page shall be and include:
(1) The title ``LIVE POULTRY DEALER DISCLOSURE DOCUMENT'' in
capital letters and bold type.
(2) The live poultry dealer's name, type of business organization,
principal business address, telephone number, email address, and, if
applicable, primary internet website address.
(3) The length of the term of the broiler growing arrangement.
(4) The following statement: ``The income from your poultry farm
may be significantly affected by the number of flocks the poultry
company places on your farm each year, the density or number of birds
placed with each flock, and the target weight at which poultry is
caught. The poultry company may have full discretion and control over
these and other factors. Please carefully review the information in
this document.''
(5) The following minimums established under the terms of the
broiler growing arrangement:
(i) The minimum number of placements on the broiler grower's farm
annually.
(ii) The minimum stocking density for each flock to be placed on
the broiler grower's farm.
(6) The applicable of the following two statements:
(i) ``This disclosure document summarizes certain provisions of
your broiler growing arrangement and other information. You have the
right to read this disclosure document and all accompanying documents
carefully. At least 14 calendar days before the live poultry dealer
executes the broiler growing arrangement (provided that the grower may
waive up to 7 calendar days of that time period), the poultry company
is required to provide you with: (1) this disclosure document, and (2)
a copy of the broiler growing arrangement.'' or
(ii) ``This disclosure document summarizes certain provisions of
your broiler growing arrangement and other information. You have the
right to read this disclosure document and all accompanying documents
carefully. The live poultry dealer is required to provide this
disclosure document to you simultaneously with (a) a copy of the
broiler growing arrangement, (b) any new or modified housing
specifications that would require you to make an original or additional
capital investment, and (c) a letter of intent.''
(7) The following statement: ``Even if the broiler growing
arrangement contains a confidentiality provision, by law you still
retain the right to discuss the terms of the broiler growing
arrangement and the Live Poultry Dealer Disclosure Document with a
Federal or State agency, your financial advisor or lender, your legal
advisor, your accounting services representative, other growers for the
same live poultry dealer, and your immediate family or business
associates. A business associate is a person not employed by you but
with whom you have a valid business reason for consulting when entering
into or operating under a broiler growing arrangement.''
(8) The following statement in bold type: ``Note that USDA has not
verified the information contained in this document. If this disclosure
by the live poultry dealer contains any false or misleading statement
or a material omission, a violation of Federal and/or State law may
have occurred.''
(c) Required disclosures following the cover page. The live poultry
dealer shall disclose, in the Live Poultry Dealer Disclosure Document
following the cover page, the following information:
(1) A summary of litigation over the prior 5 years between the live
poultry dealer and any broiler grower, including the nature of the
litigation, its location, the initiating party, a brief description of
the controversy, and any resolution.
(2) A summary of all bankruptcy filings in the prior 5 years by the
live poultry dealer and any parent,
[[Page 83293]]
subsidiary, or related entity of the live poultry dealer.
(3) A statement that describes the live poultry dealer's policies
and procedures regarding the potential sale of the broiler grower's
facility or assignment of the broiler growing arrangement to another
party, including the circumstances under which the live poultry dealer
will offer the successive buyer a broiler growing arrangement.
(4) A statement describing the live poultry dealer's policies and
procedures, as well as any appeal rights arising from the following
events described in paragraphs (c)(4)(i) through (c)(4)(vi) of this
section. If no policy or procedure exists, the live poultry dealer will
acknowledge ``no policy exists'' relating to the items in paragraphs
(c)(4)(i) through (c)(4)(vi) of this section.
(i) Increased lay-out time.
(ii) Sick, diseased, and high early-mortality flocks.
(iii) Natural disasters, weather events, or other events adversely
affecting the physical infrastructure of the local complex or the
grower facility.
(iv) Other events potentially resulting in massive depopulation of
flocks, affecting grower payments.
(v) Feed outages, including outage times.
(vi) Grower complaints relating to feed quality, formulation, or
suitability.
(5) A table showing the average annual broiler grower turnover
rates for the previous calendar year and the average of the 5 previous
calendar years at a company level and at a local complex level.
(d) Financial Disclosures. The live poultry dealer must include in
the Live Poultry Dealer Disclosure Document the following information:
(1) Tables showing average annual gross payments to broiler growers
at the local complex for each of the 5 previous years. The tables must
express average payments in U.S. dollars per farm facility square foot.
The tables must be organized to present the following elements:
(i) Year.
(ii) Housing specification tier (lowest to highest).
(iii) Distribution of payments, specifically either--
(A) Quintile (lowest to highest), for a local complex comprising 10
or more growers, or
(B) Mean and one standard deviation from the mean, for a local
complex comprising 9 or fewer growers.
(2) If poultry housing specifications for broiler growers under
contract with the complex are modified such that an additional capital
investment may be required, or if the 5-year averages provided under
paragraph (d)(1) of this section do not accurately represent projected
grower gross annual payments under the terms of the applicable broiler
growing arrangement for any reason, the live poultry dealer must
provide the following information:
(i) Tables providing projections of average annual gross payments
to broiler growers under contract with the complex with the same
housing specifications for the term of the broiler growing arrangement
at five quintile levels or by mean and standard deviation expressed as
dollars per farm facility square foot.
(ii) An explanation of why the annual gross payment averages for
the previous 5 years, as provided under paragraph (d)(1) of this
section, do not provide an accurate representation of projected future
payments, including the basic assumptions underlying the projections
provided under paragraph (d)(2)(i) of this section.
(3) A summary of information the live poultry dealer collects or
maintains relating to grower variable costs inherent in broiler
production.
(4) Current contact information for the State university extension
service office or the county farm advisor's office that can provide
relevant information about broiler grower costs and broiler farm
financial management in the broiler grower's geographic area.
(e) Small Live Poultry Dealer Financial Disclosures. A live poultry
dealer engaged in the production of broilers is exempt from the
requirements in paragraph (a)(1) of this section if the live poultry
dealer, together with all companies controlled by or under common
control with the live poultry dealer, slaughters fewer than 2 million
live pounds of broilers weekly (104 million pounds annually).
(f) Governance and Certification. (1) The live poultry dealer
engaged in the production of broilers must establish, maintain, and
enforce a governance framework that is reasonably designed to:
(i) Audit the accuracy and completeness of the disclosures required
under paragraphs (a) through (d) of this section.
(ii) Ensure compliance with all obligations under the Packers and
Stockyards Act and regulations thereunder.
(2) The principal executive officer or officers, or persons
performing similar functions, must certify in the Live Poultry Dealer
Disclosure Document that the live poultry dealer has established,
maintains, and enforces the governance framework and that, based on the
officer's knowledge, the Live Poultry Dealer Disclosure Document does
not contain any untrue statement of a material fact or omit to state a
material fact which would render it misleading.
(g) Receipt by Growers. (1) The Live Poultry Dealer Disclosure
Document must include a broiler grower's signature page that contains
the following statement: ``If the live poultry dealer does not deliver
this disclosure document within the timeframe specified herein, or if
this disclosure document contains any false or misleading statement or
a material omission (including any discrepancy with other oral or
written statements made in connection with the broiler growing
arrangement), a violation of Federal and State law may have occurred.
Violations of Federal and State laws may be determined to be unfair,
unjustly discriminatory, or deceptive and unlawful under the Packers
and Stockyards Act, as amended. You may file a complaint at
farmerfairness.gov or call 1-833-DIAL-PSD (1-833-342-5773) if you
suspect a violation of the Packers and Stockyards Act or any other
Federal law governing fair and competitive marketing, including
contract growing, of livestock and poultry. Additional information on
rights and responsibilities under the Packers and Stockyards Act may be
found at www.ams.usda.gov.''
(2) The live poultry dealer must obtain the broiler grower's or
prospective broiler grower's dated signature on the broiler grower's
signature page in paragraph (g)(1) of this section as evidence of
receipt or obtain alternative documentation to evidence delivery and
that best efforts were used to obtain grower receipt. The live poultry
dealer must provide a copy of the dated signature page or alternative
documentation to the broiler grower or prospective broiler grower and
must retain a copy of the dated signature page or alternative
documentation in the dealer's records for 3 years following expiration,
termination, or non-renewal of the broiler growing arrangement.
(3) Information in the Live Poultry Dealer Disclosure Document must
be presented in a clear, concise, and understandable manner for
growers. Live poultry dealers may refer to Form PSD 6100 for further
instructions on the presentation of information and certain
calculations.
(4) The live poultry dealer must make reasonable efforts to ensure
that growers are aware of their right to request translation
assistance, and to assist the grower in translating the Disclosure
Document at least 14 calendar days before the live poultry dealer
executes
[[Page 83294]]
the broiler growing arrangement that does not contemplate modifications
to the existing housing specifications (provided that the grower may
waive up to 7 calendar days of that time period) or where modifications
to the existing housing specifications are contemplated when the live
poultry dealer provides the grower with the Disclosure Document.
Reasonable efforts include but are not limited to providing current
contact information for professional translation service providers,
trade associations with translator resources, relevant community
groups, or any other person or organization that provides translation
services in the broiler grower's geographic area. A live poultry dealer
may not restrict a broiler grower or prospective broiler grower from
discussing or sharing the Disclosure Document for purposes of
translation with a person or organization that provides language
translation services.
(h) Contract terms. A live poultry dealer engaged in the production
of broilers must specify in the true written copy of the broiler
growing arrangement the following:
(1) The minimum number of placements of poultry at the broiler
grower's facility annually.
(2) The minimum stocking density for each flock placed with the
broiler grower under the broiler growing arrangement.
0
5. Add Sec. 201.104 to read as follows:
Sec. 201.104 Disclosures for broiler grower ranking system payments.
(a) Poultry grower ranking system records. If a live poultry dealer
engaged in the production of broilers uses a poultry grower ranking
system to calculate broiler grower payments, the live poultry dealer
must produce records in accordance with paragraphs (b) and (c) of this
section. The live poultry dealer must maintain these records for 5
years.
(b) Placement Disclosure. Within 24 hours of flock delivery to a
broiler grower's facility, the live poultry dealer must provide all the
following information to the broiler grower regarding the placement:
(1) The stocking density of the placement.
(2) Names and all ratios of breeds of the poultry delivered.
(3) If the live poultry dealer has determined the sex of the birds,
all ratios of male and female poultry delivered.
(4) The breeder facility identifier.
(5) The breeder flock age.
(6) Information regarding any known health impairments of the
breeder flock or of the poultry delivered.
(7) Adjustments, if any, that the live poultry dealer may make to
the calculation of the grower's pay based on the inputs in paragraphs
(b)(1) through (b)(6) of this section.
(c) Poultry grower ranking system settlement documents. In addition
to the requirements of Sec. 201.100 of this part, a live poultry
dealer must provide disclosures to all broiler growers on the grouping
or ranking sheets as described in paragraphs (c)(1) and (c)(2) of this
section. The disclosures need not show the names of other growers.
(1) Live poultry dealers must disclose the housing specification
for each broiler grower grouped or ranked during the specified period.
(2) Live poultry dealers must disclose all the following
information to each broiler grower participant ranked under a poultry
grower ranking system:
(i) The stocking density for each placement in the ranking.
(ii) The names and all ratios of breeds of the poultry for each
placement in the ranking.
(iii) If the live poultry dealer has determined the sex of the
birds, all ratios of male and female poultry for each placement in the
ranking.
(iv) All breeder facility identifiers for each placement in the
ranking.
(v) The breeder flock age(s) for each placement in the ranking.
(vi) The number of feed disruptions each ranked broiler grower
endured during the growout period where the grower was completely out
of feed for 12 hours or more.
Note: The following appendices will not appear in the Code of
Federal Regulations.
Appendix 1. Details of the Estimated One-Time, First-Year Costs and On-
Going Annual Costs of Providing Disclosure Documents Required in
Sec. Sec. 201.102 and 201.104
Table 1 below provides the details of the estimated one-time,
first-year costs to live poultry dealers (LPD) of providing
disclosure documents required in Sec. 201.102. AMS expects that the
direct costs will consist entirely of the value of the time required
to produce and distribute the disclosures and maintain proper
records. The number of hours the second column were provided by AMS
subject matter experts. These experts were auditors and supervisors
with many years of experience in auditing live poultry dealers for
compliance with the Act. They provided estimates of the average
amount of time that would be necessary for each live poultry dealer
to meet each of the elements listed in the ``Regulatory
Requirements'' column. Estimates for the value of the time are U.S.
Bureau of Labor Statistics Occupational Employment and Wage
Statistics estimated released May 2022. Wage estimates are marked up
41.82 percent to account for benefits. The ``Adjustment'' column
allows for estimation of costs that will only apply to a subset of
the poultry growers or to the live poultry dealers. A blank value in
the Adjustment column indicates that no adjustments were made to the
costs. Each adjustment is different and described in the relevant
footnote. Expected costs for each ``Regulatory Requirement'' and are
listed in the ``Expected Cost'' column. Summing the values in the
``Expected Cost'' column provides the total expected first-year,
one-time costs for setting-up and producing the disclosure documents
associated with Sec. 201.102.
Table 1--Expected First-Year Direct Costs Associated With Sec. 201.102
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of
Regulatory requirement hours required Profession Expected wage Number of LPDs Adjustment Expected cost
for each LPD ($) (percent) ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
201.102(b)(1)-(8)......................... 1 Manager..................... 84.27 42 .............. 3,539
4 Lawyer...................... 131.38 42 .............. 22,072
201.102(c)(1)-(3)......................... 10 Manager..................... 84.27 42 .............. 35,393
5 Administrative.............. 41.71 42 .............. 8,759
10 Lawyer...................... 131.38 42 .............. 55,180
201.102(c)(4)............................. 2 Manager..................... 84.27 \a\ 188 .............. 31,685
4 Manager..................... 84.27 42 .............. 14,157
1 Lawyer...................... 131.38 42 .............. 5,518
201.102(c)(5)............................. 1 Manager..................... 84.27 \a\ 188 .............. 15,843
201.102(d)(1)(2)(i)....................... 30 Manager..................... 84.27 \b\ 27 \c\ 90 61,432
8 Administrative.............. 41.71 \b\ 27 \c\ 90 8,108
22 Information Tech............ 92.91 \b\ 27 \c\ 90 49,667
201.102(d)(1)(2)(ii)-(v).................. 60 Manager..................... 84.27 42 \d\ 5 10,618
16 Administrative.............. 41.71 42 \d\ 5 1,401
[[Page 83295]]
44 Information Tech............ 92.91 42 \d\ 5 8,584
201.102(d)(3)............................. 20 Manager..................... 84.27 42 \e\ 5 3,539
5 Administrative.............. 41.71 42 \e\ 5 438
15 Information Tech............ 92.91 42 \e\ 5 2,927
201.102(d)(4)............................. 6 Manager..................... 84.27 42 .............. 21,236
2 Administrative.............. 41.71 42 .............. 3,504
201.102(d)(5)............................. 0.5 Manager..................... 84.27 42 .............. 1,770
0.5 Administrative.............. 41.71 42 .............. 876
201.102(f)................................ 40 Manager..................... 84.27 42 .............. 141,572
20 Lawyer...................... 131.38 42 .............. 110,360
10 Administrative.............. 41.71 42 .............. 17,518
10 Information Tech............ 92.91 42 .............. 39,020
201.102(g)(1)(2).......................... 1 Manager..................... 84.27 42 .............. 3,539
1 Administrative.............. 41.71 42 .............. 1,752
201.102(i)(2)............................. 1 Manager..................... 84.27 42 .............. 3,539
1 Lawyer...................... 131.38 42 .............. 5,518
-------------------------------------------------------------------------------------------------------------
Total Cost............................ .............. ............................ .............. .............. .............. \f\ 689,063
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ AMS estimated a manager's time required for each of the 188 broiler complexes rather than the 42 live dealer firms.
\b\ 201.102(d)(1)(i) only applies to live poultry dealers that process more than 2 million pounds of broilers per week.
\c\ Reduces estimated costs by 10 percent to exclude the 5 percent for the estimated proportion of growers that require upgrades to poultry housing and
5 percent for the estimated proportion of growers that enter a contract for the first time.
\d\ Estimates costs for the 5 percent of the growers that require upgrades to poultry housing and enter into contracts for the first time.
\e\ Estimates costs for the 5 percent of the growers that require upgrades to poultry housing.
\f\ Total may not sum due to rounding.
Table 2 provides the details of the estimated ongoing costs of
providing disclosure documents required in Sec. 201.102. Table 2 is
laid out the same as Table 1. AMS subject matter experts provided
estimates in the second column of the average amount of time that
would be necessary for each live poultry dealer to meet each of the
elements listed in the ``Regulatory Requirements'' column. Estimates
for the value of the time are from U.S. Bureau of Labor Statistics
Occupational Employment and Wage Statistics released May 2022. Wage
estimates are marked up 41.82 percent to account for benefits. The
``Adjustment'' column allows for estimation of costs that will only
apply to a subset of the poultry growers or to the live poultry
dealers. Expected costs for each ``Regulatory Requirement'' and are
listed in the ``Expected Cost'' column. Summing the values in the
``Expected Cost'' column provides the total expected costs for
producing and distributing the disclosure documents associated with
Sec. 201.102 on an ongoing basis.
Table 2--Expected Ongoing Direct Costs Associated With Sec. 201.102
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Number of LPDs/
Regulatory requirement hours required Profession Expected wage number of Adjustment Expected cost
for each LPD ($) contracts (percent) ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
201.102(a)(1)............................. 0.08 Evenly distributed among \a\ 72.96 19,417 \b\ 74.72 88,212
management, administrative,
and information tech.
201.102(a)(2)............................. 0.08 Evenly distributed among \1\ 72.96 19,808 \c\ 5 6,022
management, administrative,
and information tech.
201.102(a)(3)............................. 0.08 Evenly distributed among \1\ 72.96 19,808 \d\ 5 6,022
management, administrative,
and information tech.
201.102(b)................................ 0.5 Manager..................... 84.27 42 .............. 1,770
0.5 Administrative.............. 41.71 42 .............. 876
201.102(c)(1)-(3)......................... 1 Manager..................... 84.27 42 .............. 3,539
1 Administrative.............. 41.71 42 .............. 1,752
1 Lawyer...................... 131.38 42 .............. 5,518
201.102(c)(4)............................. 0.5 Manager..................... 84.27 \e\ 188 .............. 7,921
1 Manager..................... 84.27 42 .............. 3,539
0.5 Lawyer...................... 131.38 42 .............. 2,759
201.102(c)(5)............................. 0.5 Manager..................... 84.27 \e\ 188 .............. 7,921
201.102(d)................................ 0.17 (10 min.) Administrative.............. 41.71 \e\ 188 .............. 1,307
201.102(d)(1)(i).......................... 15 Manager..................... 84.27 \f\ 27 \g\ 90 30,716
3 Administrative.............. 41.71 \f\ 27 \g\ 90 3,041
6 Information Tech............ 92.91 \f\ 27 \g\ 90 13,546
201.102(d)(1)(ii)-(v)..................... 30 Manager..................... 84.27 42 \h\ 5 5,309
6 Administrative.............. 41.71 42 \h\ 5 526
12 Information Tech............ 92.91 42 \h\ 5 2,341
201.102(d)(2)............................. 10 Manager..................... 84.27 \f\ 27 \i\ 5 1,770
2 Administrative.............. 41.71 \f\ 27 \i\ 5 175
4 Information Tech............ 92.91 \f\ 27 \i\ 5 780
201.102(d)(3)............................. 0.25 Manager..................... 84.27 42 .............. 885
0.25 Administrative.............. 41.71 42 .............. 438
201.102(d)(4)............................. 0.25 Manager..................... 84.27 42 .............. 885
0.25 Administrative.............. 41.71 42 .............. 438
201.102(f)................................ 20 Manager..................... 84.27 42 .............. 70,786
5 Lawyer...................... 131.38 42 .............. 27,590
[[Page 83296]]
3 Administrative.............. 41.71 42 .............. 5,255
4 Information Tech............ 92.91 42 .............. 15,608
201.102(g)................................ 0.25 Administrative.............. 41.71 \e\ 188 .............. 1,960
-------------------------------------------------------------------------------------------------------------
Total Cost............................ .............. ............................ .............. .............. .............. \j\ 319,206
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ $72.96 is the average of the average wages for poultry processing managers, administrative professionals, and information technology staff at
$84.27, $41.71, and $92.91 respectively.
\b\ 74.72 is the percentage of the existing poultry grower contracts that are expected to come up for renewal each year. It includes all flock-to-flock
and single year contracts as well as longer term contracts that are expected to expire within a year.
\c\ Estimates cost for the 5 percent of the growers that require upgrades to poultry housing.
\d\ Estimates costs for only the 5 percent of growers that that enter contract for the first time.
\e\ AMS estimated a manager's time required for each of the 188 broiler complexes rather than the 42 live dealer firms.
\f\ 201.102(d)(1)(i) only applies to live poultry dealers that process more than 2 million pounds of poultry per week.
\g\ Reduces estimated cost by 10 percent to exclude the 5 percent for the estimated proportion of growers that require upgrades to poultry housing and 5
percent for the estimated proportion of growers that enter a contract for the first time.
\h\ Estimates cost for the 5 percent of the growers that require upgrades to poultry housing and enter into contracts for the first time.
\i\ Estimates cost for the 5 percent of the growers that require upgrades to poultry housing.
\j\ Total may not sum due to rounding.
Table 3 below provides the details of the estimated one-time,
first-year costs to live poultry dealers of providing disclosure
documents required in Sec. 201.104. Like the previous tables, AMS
subject matter experts provided estimates in the second column of
the average amount of time that would be necessary for each live
poultry dealer to meet each of the elements listed in the
``Regulatory Requirements'' column. Values in the ``Expected Wage''
column are taken from U.S. Bureau of Labor Statistics Occupational
Employment and Wage Statistics released May 2022. Wage estimates are
marked up 41.82 percent to account for benefits. The number of LPDs
is the number of live poultry dealers that filed annual reports with
AMS for their 2021 fiscal years. ``Expected Cost'' is the estimate
of the cost of each ``Regulatory Requirement.'' Summing the
``Expected Cost'' column provides the total expected first-year,
one-time costs for setting-up and producing the disclosure documents
associated with Sec. 201.104.
Table 3--One Time First-Year Costs Associated With Sec. 201.104
----------------------------------------------------------------------------------------------------------------
Number of Expected wage Expected cost
Regulatory requirement hours per LPD Profession ($) Number of LPDs ($)
----------------------------------------------------------------------------------------------------------------
201.104(a).................... 2 Manager......... 84.27 42 7,079
4 Administrative.. 41.71 42 7,007
2 Information 92.91 42 7,804
Technology.
201.104(b).................... 5 Manager......... 84.27 42 17,696
2 Administrative.. 41.71 42 3,504
18 Information 92.91 42 70,237
Technology.
201.104(c).................... 8 Manager......... 84.27 42 28,314
5 Administrative.. 41.71 42 8,759
22 Information 92.91 42 85,845
Technology.
---------------------------------------------------------------------------------
Total Cost................ .............. ................ .............. .............. \a\ 236,244
----------------------------------------------------------------------------------------------------------------
\a\ Total may not sum due to rounding.
Table 3 below provides the details of the estimated ongoing
costs of providing disclosure documents required in Sec. 201.104.
AMS subject matter experts provided estimates in the second column
of the average amount of time that would be necessary for each live
poultry dealer to meet each of the elements listed in the
``Regulatory Requirements'' column. They also provided the expected
number of tournaments per plant. The number of processing plants was
tallied from the annual reports that live poultry dealers file with
AMS. Values in the ``Expected Wage'' column were found in U.S.
Bureau of Labor Statistics Occupational Employment and Wage
Statistics released May 2022. Wage estimates are marked up 41.82
percent to account for benefits. Multiplying across the row provides
the ``Cost'' for each ``Regulatory Requirement,'' and summing the
``Cost'' column provides the total expected costs for producing and
distributing the disclosure documents associated with Sec. 201.104
on an ongoing basis.
Table 4--Ongoing Expected Costs Associated With Sec. 201.104
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of
Regulatory requirement Hours Profession Number of tournaments Weeks in a Avg. wage ($) Cost ($)
plants per plant year
--------------------------------------------------------------------------------------------------------------------------------------------------------
201.104(b)........................ 0.1 Evenly distributed 188 1.35 52 \a\ 72.96 96,291
among management,
administrative, and
information tech.
201.104(c)........................ 0.1 Evenly distributed 188 1.35 52 \a\ 72.96 96,291
among management,
administrative, and
information tech.
---------------------------------------------------------------------------------------------------------------------
Total Cost.................... .............. .................... .............. .............. .............. .............. 192,582
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ $72.96 is the average of the average wages for poultry processing managers, administrative professionals, and information technology staff at
$84.27, $41.71, and $92.91 respectively.
[[Page 83297]]
Appendix 2. Technical Overview of Estimates of the Economic Benefits of
Reduction in Profit Uncertainty to Contract Broiler Growers With Rule
Changes Promoting Greater Transparency in Returns
A potential benefit of the contract disclosure rules providing
increased transparency would be that doing so could lower the
uncertainty in the contract broiler grower's profit stream.
According to economic principles, a risk averse producer will
benefit economically from a reduction in profit risk, a component of
the proposed rule's benefits, discussed above. Given assumptions
about the level of risk aversion of the producer, the distribution
of contract grower profit, and the grower's utility function (an
economic concept that in this case measures the grower's preferences
over a set of goods), it is possible to calculate the range of
economic benefits to contract growers of decreased profit
uncertainty associated with greater transparency. For this analysis,
we assume that the producer maximizes an absolute risk aversion
(ARA) utility function. The alternative to an absolute risk aversion
function is a relative risk aversion function (RRA). For the former,
the coefficient of risk aversion is the negative of the ratio of the
second to first derivatives of the utility function with respect to
the good (e.g., wealth or consumption) while the latter multiples
this ratio times the level of the good. We could find only two
papers that used either RRA or ARA for examining North American
poultry contract growers. Hu (2015) and Hegde and Vukina (2003)
assume CARA for U.S. broiler contract growers. The former is an
econometric exercise that does not provide sufficient information to
obtain a risk aversion parameter for use in a scenario analysis and
the latter is simply a simulation exercise of a wide range of
arbitrary parameter values for the absolute risk aversion parameters
without referring them to a given range of risk aversion premium
(RAP) levels to provide context.
A benefit of relative risk aversion is that the relative risk
aversion parameter is scale free, which represents a convenience for
analysis. We assume that one reason for the greater use of relative
risk aversion compared to absolute risk aversion is that it saves
the researcher the work of having to solve the nonlinear equations
necessary to scale the risk parameters to the size of the risky bet.
A nice property of the absolute risk aversion is that the
preferences for risk aversion are directly reflective of where the
researcher wants risk preferences to be on a 0%-100% percentage of
the standard deviation of the gamble that a risk averter would pay
to avoid the gamble altogether. With relative risk aversion in
contrast, the researcher instead refers to say, ``typical'' values
of the relative risk aversion coefficient. Relative risk aversion
measure is sensitive to what is included or excluded when defining
or measuring the outcome variable, e.g., whether wealth or profits
(Meyer and Meyer, 2005). When the focus is on representing and
measuring the risk preferences of the decision maker, as it is in
the analysis of broiler growers, either relative or absolute risk
aversion is sufficient as the basis for the analysis, and since
simple arithmetic allows one to go from model to the other, only one
of these approaches is needed (ibid.).
Another decision to be made is how the producer's risk aversion
changes with wealth. Under constant absolute risk aversion (CARA),
the grower's risk aversion does not change as wealth increases.
Decreasing absolute risk aversion (DARA) assumes that the grower's
risk aversion increases as wealth increases. Another possibility is
that the grower's risk aversion is increasing in wealth (IARA).
While no evidence exists one way or another for how risk preferences
of broiler contract growers change with wealth, the agricultural
economics literature generally assumes DARA over IARA. We have no
information one way or another on how the risk aversion of contract
growers changes with wealth, and hence, we use both CARA and DARA.
First, we assume that the grower has constant absolute risk
aversion (CARA) and makes management decisions to maximize the
expected value of a negative exponential utility function over N
simulated returns, or
U(w) = (1-e-[lambda]w)
where [lambda] is the grower's absolute risk aversion coefficient
and w is the grower's wealth that proxies for a set of goods and
services. The higher is [lambda], the higher the grower's aversion
variability in w. Wealth w is a stochastic variable defined as the
grower's initial (fixed) wealth w0 plus the stochastic
net returns. A negative exponential utility function conforms to the
hypothesis that growers prefer less risk to more given the same
expected, or average, return.
The specific functional form in the equation above also assumes
that growers view the riskiness of profit variability the same
without regard for their level of wealth, i.e., CARA (e.g., Goodwin,
2009). A risk averse grower will be willing to accept lower mean net
returns in exchange for lower variability in returns w. Let U0 be
the grower's current utility and U1 be the grower's utility with the
new contract rules and their associated lower variability of w.
Assuming mean w is constant between states, for the risk averse
grower, U1 > U0. The question then becomes how to translate the
benefit U1-U0 into a dollar value. We define the Risk Premium (RP),
or the dollar benefit to growers of decreased profit risk, as the
amount of mean profit they would be willing to give up such that U1
= U0, i.e., such that they are indifferent between the two states
(e.g., Sproul et al. 2013; Schnitkey et al., 2003).\188\
---------------------------------------------------------------------------
\188\ This Risk Premium may be considered a special case of the
compensating variation concept in economics. With the proposed rule
changes leading to greater transparency in returns, the grower would
be getting a decrease in revenue variability but would not have to
pay to get this. Hence the Risk Premium is a measure of benefit to
the grower of being under the new contract rules.
---------------------------------------------------------------------------
The first step is to construct an empirical distribution of
grower profit or net revenue. The market value of contracted share
of broilers in 2020 was $20.9 billion given NASS data on their total
value of production and the 96.3 percent shares that are contract.
Eleven percent of this value goes to contract growers, based on the
ratio of the USDA's Livestock Indemnity Program (LIP) payment rate
for contract growers divided by the rate for livestock owners,
leading to a mean gross revenue of $2.3 billion for broiler growers.
Variable and fixed costs are assumed to be non-stochastic and are
set at 24 and 19 percent of the 2020 mean gross revenue, based on
the proportions from Table 1 in Maples et al. (2020), and net
revenue is the gross revenue less the variable and fixed costs.
Initial (non-stochastic) wealth w0 is set equal to 2020 mean net
revenue.\189\ Grower net revenue is assumed to follow a normal
distribution. A normal distribution of net revenue will approximate
the distribution in cumulative distribution function of net revenue
in Figure 1 of Maples et al. (2020) with a coefficient of variation
of revenue of 0.16.\190\ Given this estimate of the coefficient of
variation of net revenue, and the mean net revenue of $1.33 billion
for broiler contract grower net revenue, the standard deviation can
be simply found as the coefficient of variation of net revenue times
this mean.
---------------------------------------------------------------------------
\189\ The academic literature tends to be vague as to setting
w0, with it either set at $0 or some unspecified amount. In
principle, it could be set at the producer's net equity going into
the year, but if one wants initial wealth for the proposes of
utility analysis to be relative liquid assets, net equity maybe too
high a value.
\190\ To put this coefficient of variation of broiler revenue of
0.16 in perspective, note that the lower-end estimate of the
coefficient of variation of farm level revenue for major row crops
is considerably higher as one might expect, at 0.25 even with crop
insurance (Cooper 2010; Belasco, Cooper, and Smith, 2019).
---------------------------------------------------------------------------
The associated absolute risk aversion coefficient l is
associated with a grower's risk aversion premium (RAP), a value that
varies between 0 and 100 percent (of the potential loss) and
reflects the amount the grower is willing to pay to avoid the
potential loss, with higher values reflecting higher risk aversion.
The l is linked to the RAP on a theoretical basis outlined in
Babcock, Choi, and Feinerman (1993). The associated absolute risk
aversion coefficient l is scaled to the standard deviation of net
revenue using the approach in Babcock, Choi, and Feinerman (1993).
Note that since l is scaled to the standard deviation of net
revenue, the calculation of the total Risk Premium across all
growers, or RP = [Sigma]i RPi, i = 1 . . . , G equal size growers is
invariant to assumptions about the total number of growers G,
whether set to an arbitrary value or to the 16,524 contract broiler
growers per the 2017 Agricultural Census.\191\ The estimated value
of l is 1.10E-09, 1.10E-06, and 1.1E-05 for G = 1, 1,000, and 10,000
equal sized growers, respectively, with an RAP of 20 percent.\192\ A
von Neumann-Morgenstern expected utility is estimated over N = 1,000
draws of wj where EU0 is
---------------------------------------------------------------------------
\191\ USDA, NASS. 2017 Census of Agriculture: United States
Summary and State Data, (April 2019).
\192\ For estimation, G = 10,000 is used to allow for a larger l
and reduce the potential for machine error in rounding.
---------------------------------------------------------------------------
[[Page 83298]]
[GRAPHIC] [TIFF OMITTED] TR28NO23.000
and EU1 is
[GRAPHIC] [TIFF OMITTED] TR28NO23.001
where w1j are draws from the normal distribution given an assumption
for a lower coefficient of variation of gross revenue with the new
rules, but with the same initial wealth, costs, and mean gross
revenue as in the base case. The risk premium RP that solves EU1(w1)
= EU0(w) is found using a numerical search routine.
For the DARA scenario, we follow Hennessy (1998), and the CARA
utility function becomes
U (w) = (1-e-[lgr]w) + bw
where b is greater than zero. Let r(w) be the risk aversion
coefficient under DARA, i.e., r(w) is decreasing in w. Hennessy
(ibid.) shows that r(w) is a function of l and b as
[GRAPHIC] [TIFF OMITTED] TR28NO23.002
Per Hennessy (ibid.), we solve for the values of l and b to
simultaneously satisfy a r(w = 0) associated with a RAP of 40
percent and a r(w = w) associated with a RAP of 20 percent. Like
Hennessy (ibid.), we assume that the Babcock, Choi, and Feinerman
approach to relate the risk coefficient to the RAP level holds
approximately for DARA preferences. The rest of the approach for
finding the risk premium RP that solves EU1(w1) = EU0(w) is the same
as for the CARA scenarios. Appendix Table A1 summarizes the
parameters and risk attitudes used in the analysis, with the RAP
value denoted as u.
Appendix Table A1--Nature of Chosen Utility Functions
----------------------------------------------------------------------------------------------------------------
Parameters and risk attitudes Low and CARA High and CARA DARA
----------------------------------------------------------------------------------------------------------------
l...................................................... 1.099164E-05 2.40788E-05 2.0533761e-05
b...................................................... 0 0 3.9580000e-09
u[w = 0]............................................... 0.20 0.40 0.40
u[w = w]............................................... 0.20 0.40 0.20
r[w = 0]............................................... 1.099164E-05 2.40788E-05 2.0529804e-05
r[w = w]............................................... 1.099164E-05 2.40788E-05 1.0991640e-05
----------------------------------------------------------------------------------------------------------------
References
Babcock, B.E. Choi, and E. Feinerman, ``Risk and Probability
Premiums for CARA Utility Functions'', J. Agric. & Res. Econ., Vol
18(1):17-24. 1993.
Belasco, Eric, Joseph Cooper, and Vincent Smith. ``The Development
of a Weather-based Crop Disaster Program,'' American Journal of
Agricultural Economics Vol. 102/1(August 2019):240-258.
Cooper, Joseph. ``Average Crop Revenue Election: A Revenue-Based
Alternative to Price-Based Commodity Payment Programs,'' American
Journal of Agricultural Economics, Vol. 92/4 (July 2010): 1214-1228.
Goodwin, B. ``Payment Limitations and Acreage Decisions Under Risk
Aversion: A Simulation Approach,'' American Journal of Agricultural
Economics, 91(1) (February 2009): 19-41.
Hegde, S. Aaron, and Tomislav Vukina. 2003. Risk Sharing in Broiler
Contracts: A Welfare Comparison of Payment Mechanisms Paper prepared
for presentation at the American Agricultural Economics Association
Annual Meeting, Montreal, Canada, July 27-30, 2003.
Hennessy, D.A. 1998. ``The Production Effects of Agricultural Income
Support Policies under Uncertainty.'' American Journal of
Agricultural Economics 80:46-57.
Hu, W. (2015) The role of risk and risk-aversion in adoption of
alternative marketing arrangements by the U.S. farmers, Applied
Economics 47:27, 2899-2912
Hurley, T., P. Mitchell, and M. Rice. ``Risk and the Value of Bt
Corn,'' Am. J. Agric. Econ. Vol 82, no. 2 (May 2004): 345-358.
Maples, Joshua G., Jada M. Thompson, John D. Anderson, and David P.
Anderson. ``Estimating COVID-19 Impacts on the Broiler Industry,''
Applied Economic Perspectives and Policy, September 9, 2020.
Mitchell, P.M. Gray, and K. Steffey. ``A Composed-Error Model for
Estimating Pest-Damage Functions and The Impact of the Western Corn
Rootworm Soybean Variant in Illinois,'' Amer. J. Agri. Econ., Vol
86, no. 2 (May 2004): 332-344.
Schnitkey, Gary, Bruce Sherrick, and Scott Irwin. ``Evaluation of
Risk Reductions Associated with Multi-Peril Crop Insurance
Products,'' Agricultural Finance Review, Spring 2003: 1-21.
Sproul, Thomas, David Zilberman, and Joseph Cooper. ``Deductibles
versus Coinsurance in Shallow-Loss Crop Insurance,'' Choices, 3rd
Quarter 2013.
Appendix 3. Details of the Estimated One-Time, First-Year Costs and On-
Going Annual Costs of Providing Disclosure Documents Required in
Sec. Sec. 201.102 and 201.104 Under the Small Business Exemption
Alternative
Costs for the alternative that would exempt live poultry dealers
that produced and average of less than 2 million pounds of broilers
per week were estimated similarly to cost for the Sec. Sec. 201.102
and 201.104. AMS subject matter experts provided estimates of the
average amount of time that would be necessary for each live poultry
dealer to comply with each new requirement in Sec. Sec. 201.102 and
201.104, and the hours were multiplied by wage estimates to arrive
at an expected cost for each regulatory element. The tables are set
up the same as before. Multiplying across row for each regulatory
element provides the expected cost for the element. Summing the
expected costs for element provides the total cost.
Table 1 below provides the details of the estimated one-time,
first-year costs of providing disclosure documents required in Sec.
201.102. AMS expects that the direct costs will consist entirely of
the value of the time required to produce and distribute the
disclosures and maintain proper records. The number of hours the
second column were provided by AMS subject matter experts. These
experts were auditors and supervisors with many years of experience
in auditing live poultry dealers for compliance with the Act. They
provided estimates of the average amount of time that would be
necessary for each live poultry dealer to meet each of the elements
listed in the ``Regulatory Requirements'' column. Estimates for the
value of the time are U.S. Bureau of Labor Statistics Occupational
Employment and Wage Statistics estimates released May 2022. The wage
estimates are marked up 41.82 percent to account for benefits. The
``Adjustment'' column allows for estimation of costs that will only
apply to a subset of the poultry growers or to the live poultry
dealers. A blank value in the Adjustment column indicates that no
adjustments were made to the costs. Each adjustment is different and
described in the relevant footnote. Expected costs for each
``Regulatory Requirement'' and are listed in the ``Expected Cost''
column. Summing the values in the ``Expected Cost'' column provides
the total expected first-year, one-time costs for setting-up and
producing the disclosure documents associated with Sec. 201.102.
[[Page 83299]]
Table 1--Expected First-Year Direct Costs Associated With Sec. 201.102
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of
Regulatory requirement hours required Profession Expected wage Number of LPDs Adjustment Expected cost
for each LPD ($) \a\ (percent) ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
201.102(b)(1)-(8)......................... 1 Manager..................... 84.27 27 .............. 2,275
4 Lawyer...................... 131.38 27 .............. 14,189
201.102(c)(1)-(3)......................... 10 Manager..................... 84.27 27 .............. 22,753
5 Administrative.............. 41.71 27 .............. 5,631
10 Lawyer...................... 131.38 27 .............. 35,473
201.102(c)(4)............................. 2 Manager..................... 84.27 \b\ 121 .............. 20,369
4 Manager..................... 84.27 27 .............. 9,101
1 Lawyer...................... 131.38 27 .............. 3,547
201.102(c)(5)............................. 1 Manager..................... 84.27 \b\ 121 .............. 10,184
201.102(d)(1)(2)(i)....................... 30 Manager..................... 84.27 27 \c\ 90 61,432
8 Administrative.............. 41.71 27 \c\ 90 8,108
22 Information Tech............ 92.91 27 \c\ 90 49,667
201.102(d)(1)(2)(ii)-(v).................. 60 Manager..................... 84.27 27 \d\ 5 6,826
16 Administrative.............. 41.71 27 \d\ 5 901
44 Information Tech............ 92.91 27 \d\ 5 5,519
201.102(d)(3)............................. 20 Manager..................... 84.27 27 \f\ 5 2,275
5 Administrative.............. 41.71 27 \f\ 5 282
15 Information Tech............ 92.91 27 \f\ 5 1,881
201.102(d)(4)............................. 6 Manager..................... 84.27 27 .............. 13,652
2 Administrative.............. 41.71 27 .............. 2,252
201.102(d)(5)............................. 0.5 Manager..................... 84.27 27 .............. 1,138
0.5 Administrative.............. 41.71 27 .............. 563
201.102(f)(1)(2).......................... 40 Manager..................... 84.27 27 .............. 91,010
20 Lawyer...................... 131.38 27 .............. 70,946
10 Administrative.............. 41.71 27 .............. 11,261
10 Information Tech............ 92.91 27 .............. 25,084
201.102(g)(1)(2).......................... 1 Manager..................... 84.27 27 .............. 2,275
1 Administrative.............. 41.71 27 .............. 1,126
201.102(i)(2)............................. 1 Manager..................... 84.27 27 .............. 2,275
1 Lawyer...................... 131.38 27 .............. 3,547
-------------------------------------------------------------------------------------------------------------
Total Cost............................ .............. ............................ .............. .............. .............. \g\ 485,543
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Annual reports filed by live poultry dealers indicated 27 processed an average of more than 2 million pounds of broilers per week.
\b\ AMS estimated a manager's time required for each of the 121 broiler complexes rather than the 27 live dealer firms.
\c\ 201.102(d)(1)(i) exempts live poultry dealers that process less than 2 million pounds of broilers per week.
\d\ Reduces estimated costs by 10 percent to exclude the 5 percent for the estimated proportion of growers that require upgrades to poultry housing and
5 percent for the estimated proportion of growers that enter a contract for the first time.
\e\ Estimates costs for the 5 percent of the growers that require upgrades to poultry housing and enter into contracts for the first time.
\f\ Estimates costs for the 5 percent of the growers that require upgrades to poultry housing.
\g\ Total may not sum due to rounding.
Table 2 provides the details of the estimated ongoing costs of
providing disclosure documents required in Sec. 201.102. Table 2 is
laid out the same as Table 1. AMS subject matter experts provided
estimates in the second column of the average amount of time that
would be necessary for each live poultry dealer to meet each of the
elements listed in the ``Regulatory Requirements'' column. Estimates
for the value of the time are from U.S. Bureau of Labor Statistics
Occupational Employment and Wage Statistics released May 2022. The
wage estimates are marked up 41.82 percent to account for benefits.
The ``Adjustment'' column allows for estimation of costs that will
only apply to a subset of the poultry growers or to the live poultry
dealers. Expected costs for each ``Regulatory Requirement'' and are
listed in the ``Expected Cost'' column. Summing the values in the
``Expected Cost'' column provides the total expected costs for
producing and distributing the disclosure documents associated with
Sec. 201.102 on an ongoing basis.
Table 2--Expected Ongoing Direct Costs Associated With Sec. 201.102
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Number of LPDs/
Regulatory requirement hours required Profession Expected wage number of Adjustment Expected cost
for each LPD ($) contracts (percent) ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
201.102(a)(1)............................. 0.08 Evenly distributed among \a\ 72.96 19,417 \b\ 74.72 88,212
management, administrative,
and information tech.
201.102(a)(2)............................. 0.08 Evenly distributed among \a\ 72.96 19,417 \c\ 5 5,903
management, administrative,
and information tech.
201.102(a)(3)............................. 0.08 Evenly distributed among \a\ 72.96 19,417 \d\ 5 5,903
management, administrative,
and information tech.
201.102(b)................................ 0.5 Manager..................... 84.27 27 .............. 1,138
0.5 Administrative.............. 41.71 27 .............. 563
201.102(c)(1)-(3)......................... 1 Manager..................... 84.27 27 .............. 2,275
1 Administrative.............. 41.71 27 .............. 1,126
1 Lawyer...................... 131.38 27 .............. 3,547
201.102(c)(4)............................. 0.5 Manager..................... 84.27 \e\ 121 .............. 5,092
1 Manager..................... 84.27 27 .............. 2,275
0.5 Lawyer...................... 131.38 27 .............. 1,774
201.102(c)(5)............................. 0.5 Manager..................... 84.27 \e\ 121 .............. 5,092
201.102(d)................................ 0.17 Administrative.............. 41.71 \e\ 121 .............. 840
[[Page 83300]]
201.102(d)(1)(i).......................... 15 Manager..................... 84.27 27 \f\ 90 30,716
3 Administrative.............. 41.71 27 \f\ 90 3,041
6 Information Tech............ 92.91 27 \f\ 90 13,546
201.102(d)(1)(ii)-(v)..................... 30 Manager..................... 84.27 27 \g\ 5 3,413
6 Administrative.............. 41.71 27 \g\ 5 338
12 Information Tech............ 92.91 27 \g\ 5 1,505
201.102(d)(2)............................. 10 Manager..................... 84.27 27 \h\ 5 1,138
2 Administrative.............. 41.71 27 \h\ 5 113
4 Information Tech............ 92.91 27 \h\ 5 502
201.102(d)(3)............................. 0.25 Manager..................... 84.27 27 .............. 569
0.25 Administrative.............. 41.71 27 .............. 282
201.102(d)(4)............................. 0.25 Manager..................... 84.27 27 .............. 569
0.25 Administrative.............. 41.71 27 .............. 282
201.102(f)................................ 20 Manager..................... 84.27 27 .............. 45,505
5 Lawyer...................... 131.38 27 .............. 17,736
3 Administrative.............. 41.71 27 .............. 3,378
4 Information Tech............ 92.91 27 .............. 10,034
201.102(g)................................ 0.25 Administrative.............. 41.71 \e\ 121 .............. 1,260
-------------------------------------------------------------------------------------------------------------
Total Cost............................ .............. ............................ .............. .............. .............. \i\ 257,665
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ $72.96 is the average of the average wages for poultry processing managers, administrative professionals, and information technology staff at
$84.27, $41.71, and $92.91 respectively.
\b\ 74.72 is the percentage of the existing poultry grower contracts that are expected to come up for renewal each year. It includes all flock-to-flock
and single year contracts as well as longer term contracts that are expected to expire within a year.
\c\ Estimates cost for the 5 percent of the growers that require upgrades to poultry housing.
\d\ Estimates costs for only the 5 percent of growers that that enter contract for the first time.
\e\ AMS estimated a manager's time required for each of the 121 broiler complexes rather than the 27 live dealer firms.
\f\ Reduces estimated cost by 10 percent to exclude the 5 percent for the estimated proportion of growers that require upgrades to poultry housing and 5
percent for the estimated proportion of growers that enter a contract for the first time.
\g\ Estimates cost for the 5 percent of the growers that require upgrades to poultry housing and enter into contracts for the first time.
\h\ Estimates cost for the 5 percent of the growers that require upgrades to poultry housing.
\i\ Total may not sum due to rounding.
Table 3 below provides the details of the estimated one-time,
first-year costs of providing disclosure documents required in Sec.
201.104. Like the previous tables, AMS subject matter experts
provided estimates in the second column of the average amount of
time that would be necessary for each live poultry dealer to meet
each of the elements listed in the ``Regulatory Requirements''
column. Values in the ``Expected Wage'' column are taken from U.S.
Bureau of Labor Statistics Occupational Employment and Wage
Statistics released May 2022. The wage estimates are marked up 41.82
percent to account for benefits. The number of LPDs is the number of
live poultry dealers that filed annual reports with AMS for their
2020 fiscal years. ``Expected Cost'' is the estimate of the cost of
each ``Regulatory Requirement.'' Summing the ``Expected Cost''
column provides the total expected first-year, one-time costs for
setting-up and producing the disclosure documents associated with
Sec. 201.104.
Table 3--One Time First-Year Costs Associated With Sec. 201.104
----------------------------------------------------------------------------------------------------------------
Number of Expected wage Expected cost
Regulatory requirement hours per LPD Profession ($) Number of LPDs ($)
----------------------------------------------------------------------------------------------------------------
201.104(a).................... 2 Manager......... 84.27 27 4,551
4 Administrative.. 41.71 27 4,505
2 Information 92.91 27 5,017
Technology.
201.104(b).................... 5 Manager......... 84.27 27 11,376
2 Administrative.. 41.71 27 2,252
18 Information 92.91 27 45,152
Technology.
8 Manager......... 84.27 27 18,202
201.104(c).................... 5 Administrative.. 41.71 27 5,631
22 Information 92.91 27 55,186
Technology.
---------------------------------------------------------------------------------
Total Cost................ .............. ................ .............. .............. \a\ 151,871
----------------------------------------------------------------------------------------------------------------
\a\ Total may not sum due to rounding.
Table 4 below provides the details of the estimated ongoing
costs of providing disclosure documents required in Sec. 201.104.
AMS subject matter experts provided estimates in the second column
of the average amount of time that would be necessary for each live
poultry dealer to meet each of the elements listed in the
``Regulatory Requirements'' column. They also provided the expected
number of tournaments per plant. The number of poultry processing
plants was tallied from the annual reports that live poultry dealers
file with AMS. Values in the ``Expected Wage'' column were found in
U.S. Bureau of Labor Statistics Occupational Employment and Wage
Statistics released May 2022. The wage estimates are marked up 41.82
percent to account for benefits. Multiplying across the row provides
the ``Cost'' for each ``Regulatory Requirement,'' and summing the
``Cost'' column provides the total expected costs for producing and
distributing the disclosure documents associated with Sec. 201.104
on an ongoing basis.
[[Page 83301]]
Table 4--Ongoing Expected Costs Associated With Sec. 201.104
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of
Regulatory requirement Hours Profession Number of tournaments Weeks in a Avg. wage ($) Cost ($)
plants per plant year
--------------------------------------------------------------------------------------------------------------------------------------------------------
201.104(b)........................ 0.1 Evenly distributed 121 1.35 52 \a\ 72.96 $61,901
among management,
administrative, and
information tech.
201.104(c)........................ 0.1 Evenly distributed 121 1.35 52 \a\ 72.96 61,901
among management,
administrative, and
information tech.
---------------------------------------------------------------------------------------------------------------------
Total Cost.................... .............. .................... .............. .............. .............. .............. \b\ 123,803
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ $72.96 is the average of the average wages for poultry processing managers, administrative professionals, and information technology staff at
$84.27, $41.71, and $92.91 respectively.
\b\ Total may not sum due to rounding.
Erin Morris,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2023-24922 Filed 11-27-23; 8:45 am]
BILLING CODE P
